Civil Law
The beneficiary of a trust
may demand
performance of the
obligation without having
formally accepted the
trust in a public
document, upon mere
acquiescence in the
formation of the trust
and acceptance under
Art. 1132(2) of the Civil
Code.
(De Leon, 2019)
TRUST
DEFINITION
It is the legal relationship between one person
having an equitable ownership in a certain
property and another person owning the legal
title to such property. (Jurado, 2019)
NOTE: Trust is founded in equity and can never
result from acts violative of law. (Deluao v.
Casteel, G.R. No. L-32166 October 18, 1977)
Three persons involved in the creation of a
trust
Must comply with
the legal
requirements in
accepting donations.
TRUST v. CONTRACT
TRUST
CONTRACT
A trust always involves an Legal obligation
ownership, embracing a based on an
set of rights and duties
undertaking
fiduciary in character
supported by a
which may be created by consideration, which
a declaration without a
obligation may or
consideration. (De Leon,
may not be fiduciary
2019)
in character. (De
Leon, 2019)
A trust always involves an Legal obligation
ownership, embracing a based on an
set of rights and duties
undertaking
fiduciary in character
supported by a
which may be created by consideration, which
a declaration without a
obligation may or
consideration. (De Leon,
may not be fiduciary
2019)
in character. (De
Leon, 2019)
TRUST v. DEBT
TRUST
DEBT
A debt implies merely an A duty to deal with a
obligation to pay a certain specific property for
sum of money.
the benefit of
another. A creditor
has merely a
personal claim
against the debtor.
There is a fiduciary
There is no fiduciary
relation between a
relation between a
trustee and a beneficiary. debtor and creditor.
The beneficiary of a trust A creditor has
has a beneficial interest in merely a personal
the trust property. (De
claim against the
Leon, 2019)
debtor. (De Leon,
2019)
TRUST v. BAILMENT
TRUST
BAILMENT
A delivery of a property
The bailee has
in trust necessarily
possession of
involves a transfer of
without legal title to
1. Trustor – the person who establishes the
trust.
2. Trustee – one in whom confidence is
reposed as regards property for the benefit
of another person.
3. Beneficiary or cestui que trust – person for
whose benefit the trust has been created.
(NCC, Art. 1440)
Trust property
The subject-matter of trust may be any
property of value – real, personal, funds or
money, or choses in action. (De Leon, 2019)
TRUST DISTINGUISHED FROM OTHER
RELATIONS
TRUST v. DONATION
TRUST
DONATION
An existing legal
Transfer of property
relationship and involves which involves a
separation of legal and
disposition of both
equitable title.
legal and equitable
ownership except
gift in trust.
545
Special Contracts - Trust
legal title, or at least a
separation of legal title
and equitable interest,
with the legal title in the
trustee. (De Leon, 2019)
the trust.
the property subject
to the bailment. (De
Leon, 2019)
NOTE: Whether a trust is revocable or
irrevocable depends on the wordings or
language used in the creation of the trust. It will
be presumed revocable unless the creator has
expressed a contrary intention in the trust deed.
(De Leon, 2019)
CLASSIFICATION OF TRUST
1. As to Creation – From the viewpoint of the
creative force bringing them into existence,
they may be either:
a.
b.
KINDS OF TRUST
Express trust v. Implied trust
Express trust (NCC, Arts. 1443-1446) or
one which can come into existence
only by the execution of an intention
to create it by the trustor or the
parties (De Leon, 2019); or
BASIS
Definition
(NCC, Art.
1441)
Implied trust, or which comes into
being by operation of law (NCC, Arts.
1447-1457; De Leon, 2014); this latter
trust being either:
1.
2.
Resulting trust
Constructive trust
3. As to Revocability – From the viewpoint of
whether they may be revoked by the trustor,
they may be either:
a. Revocable trust – one which can be
revoked or cancelled by the trustor or
another individual given the power; or
b. Irrevocable trust – one which may not be
terminated during the specified term of
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
546
Comes into being
by operation of
law. It may be
either resulting
or constructive.
Created by the
direct and
positive acts of
the parties, by
some writing
or deed or will
or by words
evidencing an
intention to
create a trust.
Those which,
without being
expressed, are
deducible from
the nature of the
transaction by
operation of law
as matters of
equity,
independently of
the particular
intention of the
parties.
Parole
evidence
An express
trust
concerning an
immovable or
any interest
therein cannot
be proved by
parole
evidence. (NCC,
Art. 1443)
An implied trust
concerning an
immovable or
any interest
therein may be
proved by parole
evidence. (NCC,
Art. 1457)
Laches or
An action to
extinctive
enforce an
prescription express trust,
so long as there
is no express
repudiation of
the trust by the
trustee and
made known to
the beneficiary,
An action to
enforce an
implied trust
even when there
is no express
repudiation of
the trust by the
trustee and
made known to
the beneficiary,
whether they become effective after the
death of the trustor or during his life, they
may be either (De Leon, 2019):
b. Inter Vivos trust or “Living Trust” – one
established effective during the owner’s
life. The grantor executes a “trust deed,”
and once the trust is created, legal title to
the trust property passes to the named
trustee with duty to administer the
property for the benefit of the beneficiary.
(De Leon, 2019)
IMPLIED TRUST
Manner of
creation
2. As to Effectivity – From the viewpoint of
a. Testamentary Trust – one which is to
take effect upon the trustor’s death. It is
usually included as part of the will and
does not have a separate trust deed. (De
Leon, 2019)
EXPRESS
TRUST
Created by the
intention of the
trustor or of
the parties.
Civil Law
cannot be
barred by
laches or
extinctive
prescription.
Creation of express trust
may be barred
by laches or by
extinctive
prescription.
Express trust are those trust voluntarily and
intentionally, created by direct and positive act
of the trustor, by some writing, deed, will, or
oral declaration evincing an intention to create
trust. (NCC, Art. 1444; De Leon, 2019)
EXPRESS TRUST
NOTE: Technical or particular form of words or
phrases are not essential to the manifestation of
an intention to create a trust. It is possible to
create a trust without using the word “trust” or
“trustee.” (De Leon, 2019)
One which come into existence only by the
execution of an intention to create it by the
trustor or the parties. (De Leon, 2019)
Elements of express trust
No trust shall fail because the trustee appointed
declines the designation, unless the contrary
should appear in the instrument constituting the
trust. (NCC, Art. 1445)
1. A competent trustor and trustee;
2. An ascertainable trust res; and
3. Sufficiently certain beneficiaries
NOTE: All of the above elements are required to
be established. (De Leon, 2019)
Acceptance by the beneficiary is necessary.
Nevertheless, if the trust imposes no onerous
condition upon the beneficiary, his acceptance
shall be presumed, if there is no proof to the
contrary. (NCC, Art. 1446)
Evidence to prove express trust
No express trust concerning an immovable or
any interest therein may be proved by parol
evidence. (NCC, Art. 1443)
Kinds of express trust
1. Eleemosynary or Charitable trust – one
designed for the benefit of a segment of the
public or of the public in general. Created for
charitable, educational, social, religious, or
scientific purposes, or for the general benefit
of the humanity. (De Leon, 2019)
2. Accumulation trust – one that will
accumulate income to be reinvested by the
trustee in the trust for the period of time
specified. (De Leon, 2019)
3. Spendthrift trust – one established when the
beneficiary needs to be protected because of
his inexperience or immaturity from his
imprudent, spending habits or simply
because the beneficiary is spendthrift. (De
Leon, 2019)
4. Sprinkling trust – one that gives the trustee
the right to determine the income of the
beneficiaries who should receive income
each year and the amount thereof. (De Leon,
2019)
NOTE: The defense that express trusts cannot be
proved by parol evidence may be waived, either
by failure to interpose timely objections against
presentation of oral evidence not admissible
under the law or by cross- examining the
adverse party and his witnesses along the
prohibited lines. (Philippines v. Cojuangco G.R.
No. 139930, June 26, 2012)
An express trust over personal property or any
interest therein, and an implied trust, whether
the property subject to the trust is real or
personal, may be proved by oral evidence. (NCC.,
Art. 1457)
NOTE: The general rule is that the burden of
proving the existence of a trust is on the party
alleging its existence; and to discharge the
burden, it is generally required that his proof be
clear and satisfactory and convincing. (Heirs of
Donata Ortiz Briones v. Heirs of Maximino R.
Briones s, G.R. No. 150175, March 10, 2006)
Termination of express trust
NOTE: To affect third persons, a trust
concerning an immovable or any interest therein
must be embodied in a public instrument and
registered in the Registry of Property. (De Leon,
2019)
1.
2.
3.
547
Destruction of the corpus;
Revocation by the trustor;
Achievement of the objective, or happening
of the condition, provided for in the trust
instrument;
Special Contracts - Trust
4.
5.
6.
Death or legal incapacity of the trustee;
Confusion or merger of legal title and
beneficial title in the same person; and
Breach of trust.
presumed that there is a gift in favor of the
child. (NCC, Art. 1448)
b.
There is also an implied trust when a
donation is made to a person but it appears
that although the legal estate is transmitted
to the done, he nevertheless is either to
have no beneficial interest or only a part
thereof. (NCC, Art. 1449)
c.
If the price of a sale of property is loaned or
paid by one person for the benefit of
another and the conveyance is made to the
lender or payor to secure the payment of
the debt, a trust arises by operation of law
in favor of the person to whom the money
is loaned or for whom it is paid. The latter
may redeem the property and compel a
conveyance thereof to him. (NCC, Art. 1450)
Requisites for acquisition of property by
trustee through prescription
1. The trustee must expressly repudiate the
right of the beneficiary;
2. Such act of repudiation must be brought to
the knowledge of the beneficiary;
3. The evidence thereon must be clear and
conclusive; and
4. Expiration of the period prescribed by law.
(Heirs of Donata Ortiz Briones v. Heirs of
Maximino R. Briones, G.R. No. 150175, March
10, 2006)
IMPLIED TRUST
Q: “X” being unable to pay the purchase
price of a house and lot for his residence has
requested “Y,” and “Y” agreed to lend him
the money under one condition, that the
Certificate of Title be transferred to him, in
Y’s own name for his protection and as
security of the loan. Later on, “Y” mortgaged
the property to the bank without the
knowledge of “X.” When the mortgage
became due, “Y” did not redeem the
mortgage and the property was advertised
for sale. “X” retained you as his lawyer. What
advise would you give your client and what
legal ground provided by the Code would
you assert to defend his rights? Give
reasons. (1959 BAR)
Those which, without being express, are
deducible from the nature of the transaction as
matters of intent, or which are superinduced on
the transaction by operation of law, as matters
of equity, independently of the particular
intention of the parties. (Tong v. Kun, G.R. No.
196023, April 21, 2014)
Kinds of implied trust
1. Resulting trust – broadly defined as a trust
which is raised or created by the act or
construction of law, but in its more
restricted sense, it is a trust raised by
implication of law and presumed always to
have been contemplated by the parties, the
intention as to which is to be found in the
nature of their transaction, but not
expressed in the deed or instrument of
conveyance. (Heirs of Donata Ortiz Briones v.
Heirs of Maximino R. Briones, G.R. No. 150175,
March 10, 2006)
A: It is clear that in the instant problem, the
provision of Art. 1450 of the Civil Code is
applicable. It must be observed, however, that
the mortgage of the property by “Y” to the bank
is perfectly valid inasmuch as the bank was not
aware of any flaw or defect in the title or mode
of acquisition by “Y” since the right of “X” has
not been annotated in the Certificate of Title.
Consequently, the only way by which I would be
able to help “X” would be to advice him to
redeem the mortgaged property from the bank.
After this is done, “X” can then institute an
action to compel “Y’” to reconvey the property
to him pursuant to Art. 1450 of the Civil Code. In
this action for reconveyance, the amount paid
by “X” to the bank in redeeming the property
can then be applied to the payment of his debt to
“Y.” If there is an excess, he can recover the
amount from “Y.” (Jurado, 2019)
Examples of resulting trust:
a.
There is an implied trust when property is
sold, and the legal estate is granted to one
party but the price is by another for the
purpose of having the beneficial interest of
the property. The former is the trustee,
while the latter is the beneficiary. However,
if the person to whom the title is conveyed
is a child, legitimate or illegitimate, of the
one paying the price of the sale, no trust is
implied by law, it being disputably
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
548
Civil Law
d. If two or more persons agree to purchase
property and by common consent the legal
title is taken in the name of one of them for
the benefit of all, a trust is created by force
of law in favor of the others in proportion to
the interest of each. (NCC, Art. 1452)
The following are examples of constructive
trust:
1. When land passes by succession to any
person and he causes the legal title to be put
in the name of another, a trust is established
by implication of law for the benefit of the
true owner. (NCC, Art. 1451)
e. When property is conveyed to a person in
reliance upon his declared intention to hold
it for, or transfer it to another or the grantor,
there is an implied trust in favor of the
person whose benefit contemplated. (NCC.
Art. 1453)
2. If an absolute conveyance of property is
made in order to secure the performance of
an obligation of the grantor toward the
grantee, a trust by virtue of law is
established. If the fulfillment of the
obligation is offered by the grantor when it
becomes due, he may demand the
reconveyance of the property to him. (NCC,
Art. 1454)
2. Constructive trust – a trust raised by
construction of law or arising by operation
of law. It is a trust not created by any words,
either expressly or impliedly evincing a
direct intention to create a trust, but by the
construction of equity in order to satisfy the
demands of justice. It does not arise by
agreement or intention but by operation of
law. (Ramos v. Ramos, G.R. No. L-19872
December 3, 1974)
3. When any trustee, guardian or other person
holding a fiduciary relationship uses trust
funds for the purchase of property and
causes the conveyance to be made to him or
to a third person, a trust is established by
operation of law in favor of the person to
whom the funds belong. (NCC, Art. 1455)
NOTE: A constructive trust is not a trust in a
technical sense. (Heirs of Donata Ortiz Briones v.
Heirs of Maximino R. Briones, G.R. No. 150175,
March 10, 2006) It is substantially an equitable
remedy against unjust enrichment. (Tong v.
Kun, G.R. No. 196023, April 21, 2014)
4. If property is acquired through mistake or
fraud, the person obtaining it is, by force of
law considered a trustee of an implied trust
for the benefit of the person from whom the
property comes. (NCC, Art. 1456)
NOTE: It is otherwise known in American law as
a trust ex maleficio, trust ex delicto, and de son
tort. (Tong v. Kun, G.R. No. 196023, April 21,
2014)
Prescriptibility of actions to enforce trust
under Art. 1456
An action for reconveyance of real property
based upon a constructive or implied trust,
resulting from fraud, may be barred by the
statute of limitations. An action may be filed
from the discovery of the fraud. In some cases,
the discovery is deemed to have taken place
when new certificates of title were issued
exclusively in the name of another person. (Uy
v. CA, September 16, 2015, G.R. No. 173186)
Q: Explain the following concepts and
doctrines and give an example of each:
a. Concept of trust de son tort (Constructive
trust) (2007 BAR)
A: A constructive trust is a trust not created by
any word or phrase, either expressly or
impliedly, evincing a direct intention to create a
trust, but is one that arises in order to satisfy
the demands of justice. It does not come about
by agreement or intention but mainly by
operation of law and constructed as a trust
against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to
property which he ought not, in equity and
good conscience, to hold. (Cañezo v. Rojas, G.R.
No. 148788, November 23, 2007)
Period of prescription
BASIS
PRESCRIPTIVE
PERIOD
Annulment of voidable
Four (4) years from the
contract
based
on
discovery of the fraud.
fraudulent registration
[Art. 1391 (4), Civil
of the subject property.
Code]
Declaration of nullity Imprescriptible.
549
(Art.
Special Contracts - Trust
or inexistence of a void
or inexistent contract
based on fraudulent
registration of the
subject property.
Based on fraudulent
registration of the
subject property but
the action does not
involve annulment of
contract.
If the legitimate owner
of the subject property
which was fraudulently
registered in the name
of another had always
been in possession
thereof.
1410, Civil Code)
Ten (10) years from
the discovery of the
fraud. [Art. 1144(2),
Civil Code]
An action to quiet title.,
therefore,
imprescriptible. (Heirs
of Tappa v. Heirs of
Malupeg,
G.R.
No.
187633, April 4, 2016)
Laches may bar action
The express trusts disable the trustee from
acquiring for his own benefit the property
committed to his management or custody, at
least while he does not openly repudiate the
trust and make such repudiation known to the
beneficiary. But in constructive trusts, the rule
is that laches constitutes a bar to actions to
enforce the trust, and repudiation is not
required, unless there is a concealment of the
facts giving rise to the trust. (Guaranteed
Homes, Inc. v. Heirs of Valdez, G.R. No. 171531
January 30, 2009)
Acquisition of property by trustee through
prescription in implied trusts
Express repudiation of the trust by the trustee
is not required. All that is required is that he
must set up a title which is adverse to that of the
beneficiary. In other words, the normal
requisites for
extraordinary acquisitive
prescription must be present. (Jurado, 2019)
Conversion of implied trust to express trust
An implied trust may be converted to an
express trust through recognition by the
implied trustee of the right to the property of
the owner.
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
550
Civil Law
PARTNERSHIP
Note: The Contract of Partnership (Articles
1767-1867) is now transferred to the 2020
Golden Notes for Commercial Law per the
2020 Bar Syllabus. This subject is, however,
still included herein for educational
purposes and future references.
8.
Typical incidents of partnership
1.
Partnership
2.
It is a contract whereby two or more persons
bind themselves to contribute money, property,
or industry to a common fund, with the
intention of dividing the profits among
themselves. (NCC, Art. 1767)
3.
NOTE: Two or more persons may also form a
partnership for the exercise of a profession.
(NCC, Art. 1767)
4.
Essential elements of partnership
1.
Agreement to contribute money, property
or industry to a common fund (mutual
contribution to a common stock); and
2.
Intention to divide the profits among the
contracting parties (joint interest in the
profits). (Jarantilla Jr. v. Jarantilla et al., G.R.
No. 154486, December 1, 2010)
5.
6.
7.
Characteristics of partnership
1.
2.
3.
4.
5.
6.
7.
or specific venture for the realization of
profits with the view of dividing them
among the contracting parties; and
Profit-oriented. (NCC, Art. 1770)
Bilateral – It is entered into by two or
more persons and the rights and
obligations arising therefrom are always
reciprocal;
Onerous – Each of the parties aspires to
procure for himself a benefit through the
giving of something;
Nominate – It has a special name or
designation in our law;
Consensual – Perfected by mere consent,
upon the express or implied agreement of
two or more persons;
Commutative – The undertaking of each of
the partners is considered as the equivalent
of that of the others;
Principal – It does not depend for its
existence or validity upon some other
contracts;
Preparatory – Because it is entered into as
a means to an end, i.e. to engage in business
The partners share in profits and losses
(NCC, Arts. 1767, 1797-98);
The partnership has a juridical personality
separate and distinct from that of each of
the partners. Such juridical personality
shall be automatically acquired despite the
failure to register in the SEC (NCC, Art.
1768);
Partners have equal rights in the
management
and
conduct of the
partnership business (NCC, Art. 1803);
Every partner is an agent of the
partnership, and entitled to bind the other
partners by his acts, for the purpose of its
business. (NCC, Art. 1818) He may also be
liable for the entire partnership obligations;
All partners are personally liable for the
debts of the partnership with their separate
property (NCC, Arts. 1816, 1822-24) except
limited partners are not bound beyond the
amount of their investment (NCC, Art.
1843);
A fiduciary relation exists between the
partners (NCC, Art. 1807); and
On dissolution, the partnership is not
terminated, but continues until the winding
up of partnership is completed. (NCC, Art.
1829)
NOTE: These incidents may be modified by
stipulation of the partners subject to the rights
of third persons dealing with the partnership.
Q: TRUE or FALSE. An oral partnership is
valid. (2009 BAR)
A: TRUE. An oral contract of partnership is
valid even though not in writing. However, if it
involves contribution of an immovable property
or a real right, an oral contract of partnership is
void. In such a case, the contract of partnership
to be valid, must be in a public instrument (NCC,
Art. 1771), and the inventory of said property
signed by the parties must be attached to said
public instrument. (NCC, Art. 1773; Litonjua, Jr.
v. Litonjua, Sr., G.R. Nos. 166299-300, December
13, 2005)
551
Special Contracts - Partnership
Partnership, Co-ownership and Corporation
BASIS
PARTNERSHIP
COOWNERSHIP
Creation
By contract or by mere
agreement of the parties.
Generally created by
law and can exist
without a contract.
(Albano, 2013)
By law.
Has separate and distinct
juridical
personality
from that of each
partner.
No separate and
distinct
juridical
personality.
Has
separate
and
distinct
juridical
personality from that of
each corporator.
Realization of profits.
Common enjoyment
of a thing or right.
Depends on the Articles
of Incorporation (AOI).
10 years maximum
(May be extended
by new agreement).
(NCC, Art. 494)
A corporation shall
have
perpetual
existence unless its
articles of incorporation
provides
otherwise.
(Section 11 of R.A. No.
11232 or the Revised
Corporation Code of the
Philippines)
Minimum
persons.
GR: Minimum of one
person (Section 10 of
R.A. No. 11232 or the
Revised
Corporation
Code of the Philippines)
Juridical Personality
Purpose
Duration/ Term of
Existence
Number of Incorporators
Commencement of
Juridical Personality
No limitation.
Minimum
persons.
of
two
From the moment of
execution of the contract
of partnership.
Partner may not dispose
Disposal/Transferability of his individual interest
of Interest
unless agreed upon by
all partners.
In the absence of
stipulation to contrary, a
partner
may
bind
partnership.
Each
partner is agent of
partnership.
Power to Act with 3rd
Persons
NOTE:
Except
as
provided by Art. 1825,
persons who are not
partners as to each other
are not partners as to
third persons. [NCC, Art.
1769(1); Albano, 2013]
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
552
of
two
CORPORATION
Not applicable; no
juridical
personality.
From the date of
issuance
of
the
certificate
of
incorporation.
Co-owner
may
freely do so. (NCC,
Art. 495)
Stockholder has a right
to
transfer
shares
without prior consent
of other stockholders.
Co-owner
cannot
represent the coownership.
(NCC,
Art. 491-492)
Management is vested
with the BOD.
Civil Law
Effect of Death
Death of a partner
results in dissolution of
partnership.
May be dissolved at any
time by the will of any or
all of the partners.
Dissolution
Liability
NOTE: If an unlawful
partnership is dissolved
by a judicial decree, the
profits
shall
be
confiscated in favor of
the State.
Death of co-owner
does not necessarily
dissolve
coownership.
Death of stockholder
does not dissolve the
corporation.
May be dissolved
anytime by the will
of any or all of the
co-owners.
Can only be dissolved
with the consent of the
State.
In case of a general
partner, his separate and
personal property shall
also be liable if the assets
of the partnership is not
sufficient to satisfy the
obligation
to
third
persons.
GR: The obligation to
third persons is limited
to the assets of the
corporation.
XPN: Partner binds
himself solidarily liable
Partnership vs. Joint Venture (2015 BAR)
BASIS
Coverage
Firm name
Transfer of property
Power
PARTNERSHIP
Contemplates the undertaking of Ordinarily limited to a single
a general and continuous transaction and not intended to
business of a particular kind
pursue a continuous business
Required to operate under a firm
name.
Has no firm name
The property used becomes the The property used
property of the business entity undivided property
and hence of all the partners.
contributor.
remains
of its
A partner acting in pursuance of
the firm business, binds not only None of the co-venturers can
himself as a principal, but as bind the joint venture or his cotheir agent as well, also the venturers.
partnership and the partners.
A
partnership
acquires
personality after following the
requisites required by law.
Firm Name and Liabilities
JOINT VENTURE
NOTE: SEC registration is not
required before a partnership
acquires legal personality. (NCC,
Art. 1768)
553
A joint venture has no legal
personality.
Special Contracts - Partnership
Joint venture
GR: Any person capacitated to contract may
enter into a contract of partnership.
It is an association of persons or companies
jointly
undertaking
some
commercial
enterprise. Generally, all contribute assets and
share risks. It requires a community of interest
in the performance of the subject matter, a right
to direct and govern the policy in connection
therewith, and a duty which may be altered by
agreement to share both in profits and losses.
(Aurbach v. Sanitary Wares Manufacturing
Corp.,180 SCRA 130, December 15, 1989; Del Mar
v. PAGCOR et al., G.R. Nos..138298 & 138982, June
19,2001)
XPNs:
1.
Persons who are prohibited from giving
each other any donation or advantage
cannot enter into a universal partnership
(NCC, Art. 1782; 1994 BAR);
NOTE: A husband and wife, however, may
enter into a particular partnership or be
members thereof. (De Leon, 2014)
NOTE: Section 36(h) of R.A. No. 11232 or the
Revised Corporation Code of the Philippines
provides for the power of a corporation, “to
enter into a partnership, joint venture,
merger, consolidation or other commercial
agreement with natural or juridical
persons.”
2.
Persons suffering from civil interdiction;
and
3.
Persons who cannot give consent to a
contract:
a.
b.
c.
ESSENTIAL FEATURES OF PARTNERSHIP
1.
2.
3.
4.
5.
Kinds of partners
There must be a valid contract;
The parties (two or more persons) must
have legal capacity to enter into the
contract;
There must be a mutual contribution of
money, property, or industry to a common
fund;
The object must be lawful; and
The primary purpose must be to obtain
profits and to divide the same among the
parties. (De Leon, 2014)
1.
As to the extent of liability
a.
b.
Valid contract
2.
Partnership is a voluntary relation created by
agreement of the parties. It excludes from its
concept all other associations which do not
have their origin in a contract, express or
implied. (De Leon, 2014)
a.
b.
Before there can be a valid contract of
partnership, it is essential that the contracting
parties have the necessary legal capacity to
enter into the contract. Consequently, any
person who cannot give consent to a contract
cannot be a partner.
3.
b.
554
Original – one who became a
partner at the time of the
constitution of the partnership
Incoming – one who became a
partner as a new member of an
existing partnership.
Other kinds
a.
Persons qualified to be a partner
Capitalist – contributes either
money or property to the common
fund; he can also contribute an
intangible like credit, such as
promissory note or other evidence
of obligation, or even a goodwill
(Rabuya, 2017); and
Industrial – contributes only his
industry
As to the time of entry
Legal capacity of the parties to contract
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Minors
Insane persons
Deaf-mutes who do not know how
to write
Managing – one entrusted with the
management of the partnership.
(NCC, Arts. 1800 and 1801)
Liquidating – one who takes charge
of the liquidation and winding up
of the partnership affairs. (NCC,
Civil Law
c.
d.
e.
f.
Art. 1836)
Retiring – those who cease to be
part of the partnership
Continuing – one who continues the
business of a partnership after it
has been dissolved by reason of the
admission of a new partner, or the
retirement, death, or expulsion of
one or more partners
Dormant, Silent, Secret – one whose
connection to the partnership is
concealed and who does not take
any active part in it
Partner by Estoppel – although not
an actual partner, he has made
himself liable as such by holding
himself out as a partner of allowing
himself to be so held out. (NCC, Art.
1815)
A partnership may be formed even if the
common fund is comprised entirely of
borrowed or loaned money
A partnership may be deemed to exist among
parties who agree to borrow money to pursue a
business and to divide the profits or losses that
may arise therefrom, even if it is shown that
they have not contributed any capital of their
own to a “common fund.” Their contribution
may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners,
they are all liable for debts incurred by or on
behalf of the partnership. (Lim Tong Lim v.
Philippine Fishing Gear Industries, Inc., G.R. No.
136448, November 3, 1999)
Consequences of a partnership formed for
an unlawful purpose
NOTE: A corporation cannot become a member
of a partnership in the absence of express
authorization by statute or charter. This
doctrine is based on the following
considerations: (1) Mutual agency between the
partners and, (2) Such arrangement would
improperly allow corporate property to become
subject to risks not contemplated by the
stockholders when they originally invested in
the corporation. (Mendiola v. CA, GR. No.
159333, July 31, 2006)
1.
Principle of delectus personae
Necessity of judicial decree to dissolve an
unlawful partnership
2.
3.
4.
No one can become a member of the
partnership association without the consent of
all the partners. This rule is inherent in every
partnership.
The contract is void ab initio and the
partnership never existed in the eyes of the
law;
The profits shall be confiscated in favor of
the government;
The instruments or tools and proceeds of
the crime shall also be forfeited in favor of
the government; and
The contributions of the partners shall not
be confiscated unless they fall under No. 3.
(De Leon, 2014)
Judicial decree is not necessary to dissolve an
unlawful partnership; however, it may
sometimes be advisable that a judicial decree of
dissolution be secured for the convenience and
peace of mind of the parties. (De Leon, 2014)
RATIO: This is because of the mutual trust
among the partners and that this is a case of
subjective novation. There is subjective
novation when there is a change in the parties to
a contract. Their consent thereto is necessary in
order to bind them. (Albano, 2013)
Intention to divide the profits
The sharing in profits is merely presumptive
and not conclusive evidence of partnership.
There are numerous instances of parties who
have a common interest in the profits and
losses of an enterprise but who are not
partners. Thus, if the division of profits is
merely used as a guide to determine the
compensation due to one of the parties, such is
not a partner. (De Leon, 2014)
NOTE: Even if a partner will associate another
person in his share in the partnership, the
associate shall not be admitted into the
partnership without the consent of all the
partners, even if the partner having an associate
should be a manager. (NCC, Art. 1804) This
element of delectus personae, however, is true
only in the case of a general partner, but not as
regards a limited partner.
Q: To form a lending business, it was
verbally agreed that Noynoy would act as
financier while Cory and Kris would take
555
Special Contracts - Partnership
charge of solicitation of members and
collection of loan payments. The parties
executed the “Articles of Agreement” where
Noynoy would receive 70% of the profits
while Cory and Kris would earn 15% each.
Later, Noynoy filed a complaint against Cory
and Kris for misappropriation of funds
allegedly in their capacities as Noynoy’s
employees. In their answer, Cory and Kris
asserted that they were partners and not
mere employees of Noynoy. What kind of
relationship existed between the parties?
Articles of partnership
While partnership relation may be informally
created and its existence proved by
manifestations of the parties, it is customary to
embody the terms of the association in a
written document known as “Articles of
Partnership” stating the name, nature or
purpose and location of the firm, and defining,
among others, the powers, rights, duties, and
liabilities of the partners among themselves,
their contributions, the manner by which the
profits and losses are to be shared, and the
procedure for dissolving the partnership. (De
Leon, 2014)
A: A partnership was formed among the parties.
The “Articles of Agreement” stipulated that the
signatories shall share in the profits of the
business in a 70-15-15 manner, with Noynoy
getting the lion's share. This stipulation clearly
proved the establishment of a partnership.
(Santos v. Spouses Reyes, G.R. No. 135813,
October 25, 2001)
Commencement of contract of partnership
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated. (NCC, Art. 1784) If there is no
contrary stipulation as to the date of effectivity
of the same, its registration in the Securities and
Exchange Commission is not essential to give it
juridical personality. (De Leon, 2014)
Distribution of losses
Agreeing upon a system of sharing losses is not
necessary for the obligation is implied in the
partnership relation. If only the share of each
partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
proportion.
Formalities needed for the creation of a
partnership
GR: No special form is required for its validity
or existence. (NCC, Art. 1771) The contract may
be made orally or in writing regardless of the
value of the contributions. (2009 BAR)
The definition of partnership under Art. 1767
refers to “profits” only and is silent as to “losses.”
The reason is that the object of partnership is
primarily the sharing of profits, while the
distribution of losses is but a “consequence of
the same.” The right to share in the profits
carries with it the duty to contribute to the
losses, of any.
NOTE: An agreement to enter in a partnership
at a future time, which “by its terms is not
performed within a year from the making
thereof” is covered by the Statute of Frauds.
[NCC, Art. 1403(2)(a)] Such agreement is
unenforceable unless the same be in writing or
at least evidenced by some note or
memorandum thereof subscribed by the
parties. (De Leon, 2014)
NOTE: The partnership relation is not the
contract itself, but the result of the contract. The
relation is evidenced by the terms of the
contract which may be oral or written, express
or implied from the acts and declarations of the
parties, subject to the provisions of Articles
1771-1773 and to the Statute of Frauds. (De
Leon, 2014)
XPN: If property or real rights have been
contributed to the partnership:
1.
a.
b.
FORMATION OF PARTNERSHIP
It is created by agreement of the parties
(consensual). There is no such thing as a
partnership created by law or by operation or
implication of law alone. (De Leon, 2014)
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Personal property
556
Less than P3,000 – may be oral
P 3,000 or more – must be:
i. In a public instrument;
and
ii. Registered with Securities
and Exchange Commission
(NCC, Art. 1772)
Civil Law
2.
Real property or real rights – must be:
a.
In a public instrument (NCC, Art.
1771; (2009 BAR)
b.
With an inventory of said property
proportion to their respective shares in the
inheritance as determined in a project of
partition. What is the effect of such
agreement on the existing co-ownership?
A: The co-ownership is automatically converted
into a partnership. From the moment of
partition, A and B, as heirs, are entitled already
to their respective definite shares of the estate
and the income thereof, for each of them to
manage and dispose of as exclusively his own
without the intervention of the other heirs, and,
accordingly, he becomes liable individually for
all the taxes in connection therewith.
i. Signed by the parties
ii. Attached to the public
instrument (NCC, Art.
1773)
iii. Registered in the Registry
of Property of the province,
where the real property is
found to bind third
persons.
3.
If, after such partition, an heir allows his shares
to be held in common with his co-heirs under a
single management to be used with the intent of
making profit thereby in proportion to his
share, there can be no doubt that, even if no
document or instrument were executed for the
purpose, for tax purposes, at least, an
unregistered partnership is formed. (Oña v.
Commissioner of Internal Revenue, G.R. No. L19342, May 25, 1972)
Limited partnership – Must be registered as
such with the SEC, otherwise, it is not valid
as a limited partnership but may still be
considered a general partnership with
juridical personality. (Paras, 1969)
Where capital of the partnership consists of
money or personal property amounting to
Php 3000 or more
Future partnership
The failure to register the contract of
partnership does not invalidate the same as
among the partners, so long as the contract has
the essential requisites, because the main
purpose of registration is to give notice to third
parties, and it can be assumed that the members
themselves knew of the contents of their
contract. Non-compliance with this directory
provision of the law will not invalidate the
partnership.
It is a kind of partnership where the partners
may stipulate some other date for the
commencement of the partnership. Persons
who enter into a future partnership do not
become partners until or unless the agreed time
has arrived, or the contingency has happened.
(De Leon, 2014)
As long as the agreement for a partnership
remains inchoate or unperformed, the
partnership is not consummated. (De Leon,
2014)
Registration is merely for administration and
licensing purposes; hence, it shall not affect the
liability of the partnership and the members
thereof to third persons. [NCC, Art. 1772(2)]
RULES TO DETERMINE EXISTENCE OF
PARTNERSHIP
A void partnership under Art. 1773, in relation
to Art. 1771, may still be considered by the
courts as an ordinary contract as regards the
parties thereto from which rights and
obligations to each other may be inferred and
enforced. (Torres v. CA, G.R. No. 134559,
December 9, 1999)
Q: A and B are co-owners of an inherited
property. They agreed to use the said
common properties and the income derived
therefrom as a common fund with the
intention to produce profits for them in
557
1.
Except as provided by Art. 1825 of the NCC
(partnership by estoppel), persons who are
not partners as to each other are not
partners as to third persons;
2.
Co-ownership or co-possession does not of
itself establish a partnership, whether such
co-owners or co-possessors do or do not
share any profits made by the use of the
property;
3.
The sharing of gross returns does not of
Special Contracts - Partnership
4.
itself establish a partnership, whether or
not the persons sharing them have a joint
or common right or interest in any
property from which the returns are
derived;
intention of dividing the same among
themselves, as well as all profits they
may acquire therewith. The following
become the common fund of all the
partners:
The receipt by a person of a share of the
profits of a business is prima facie evidence
that he is a partner in the business, but no
such inference shall be drawn if such profits
were received in payment:
1.
a.
b.
c.
d.
e.
2.
As a debt by installments or
otherwise;
As wages of an employee or rent to
a landlord;
As an annuity to a widow or
representative of a deceased
partner;
As interest on a loan, though the
amount of payment varies with the
profits of the business;
As the consideration for the sale
for the sale of a goodwill of a
business or other property by
installments or otherwise. (NCC,
Art. 1769)
ii. Of all profits (NCC, Art. 1780) –
Comprises all that the partners may
acquire by their industry or work
during the existence of the
partnership as well as the usufruct of
all movable or immovable property
which each of the partner may
possess at the time of the celebration
of the contract of partnership.
b.
NOTE: In sub-paragraphs a–e, the profits in the
business are not shared as profits of a partner
as a partner, but in some other respects or for
some other purpose.
2.
Whoever alleges the existence of a partner or
partnership by estoppel has the burden of
proof. The existence of a partnership must be
proved and will not be presumed. However,
when a partnership is shown to exist, the
presumption is that it continues in the absence
of evidence to the contrary, and the burden of
proof is on the person asserting its termination.
(De Leon, 2014)
Liability of partners
b.
3.
CLASSIFICATIONS OF PARTNERSHIP
Limited partnership – One formed by
two or more persons having as
members one or more general partners
and one or more limited partners, the
latter not being personally liable for the
obligations of the partnership. (NCC,
Art. 1843)
Duration
a. Partnership at will – the partnership has
an indefinite term and it would be
dissolved only when an act or cause of
dissolution happens or arises.
b. Partnership with a fixed period or
Partnership
for
a
Particular
Undertaking – the partnerships are
automatically dissolved upon the
Object
a. Universal partnership
i. Of all present property (NCC, Art.
1778) – The partners contribute all
the property which actually belongs
to them to a common fund, with the
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Particular partnership – It is one
which has for its object,
determinate things, their use and
fruits, or a specific undertaking or
the exercise of a profession or a
vocation. (NCC, Art. 1783)
a. General partnership – One where all
partners are general partners who are
liable even with respect to their
individual properties, after the assets
of the partnership have been
exhausted. (Pineda, 2006)
Burden of proving the existence of a
partnership
1.
Property which belonged to each
of the partners at the time of the
constitution of the partnership
Profits which they may acquire
from all property contributed
558
Civil Law
expiration of the stipulated term or the
achievement
of
the
particular
undertaking stipulated in the contract
of partnership.
not known to many but only as to its
partners.
b. Notorious or open partnership – It is
known not only to the partners, but to
the public as well.
NOTE: When a partnership for a fixed term or
particular undertaking is continued after it has
terminated without any express agreement,
partnership then become one at will (NCC, Art.
1785), and the rights and duties of the partners
remain the same as they were at such
termination.
7.
a.
b.
The presence of a period, duration or statement
of a particular purpose for its creation may not
prevent the dissolution of any partnership by
an act or will of a partner. The “mutual agency”
and the “doctrine of delectus personae” allows
them to dissolve the partnership. However, an
unjustified dissolution by a partner can subject
him to a possible action for damages. (Ortega v.
Court of Appeals, 245 SCRA 529, 1995; Realubit v.
Sps. Jaso, G.R. No. 178782, September 21, 2011)
4.
b.
5.
b.
6.
Classes of universal partnership
ALL PRESENT
PROPERTY
What constitutes common property
Only usufruct of the
All
properties
properties of the
actually belonging
partners
become
to the partners
common property.
are contributed –
they
become
common property
(owned by all of
the partners and
the partnership).
ALL PROFITS
De jure partnership – One which has
complied with all the requirements for
its establishment.
De facto partnership – One which has
failed to comply with all the legal
requirements for its establishment.
As to profits as common property
All profits acquired by
As to profits from
the industry of the
other sources:
partners
become
GR: Aside from
common
property
the contributed
(whether or not they
properties,
the
were
obtained
profits of said
through the usufruct
property become
contributed)
common property.
Representation to others
a.
Commercial or trading – One formed for
the transaction of business.
Professional or non-trading – One
formed for the exercise of a profession.
(De Leon, 2014)
UNIVERSAL v. PARTICULAR
Legality of existence
a.
Purpose
Ordinary or real partnership – One
which actually exists among the
partners and also as to third person.
Ostensible or partnership by estoppel –
When two or more persons attempt to
create a partnership but fail to comply
with the legal personalities essential
for juridical personality, the law
considers them as partners, and the
association is a partnership insofar as it
is favorable to third persons, by reason
of the equitable principle of estoppel.
(MacDonald et. al. v. Nat’l. City Bank of
New York, G.R. No. L-7991, May 21,
1956; Atwel v. Concepcion Progressive
Association, G.R. No. 169370, April 14,
2008)
XPN: Profits from
other sources may
become common
if there is a
stipulation to such
effect.
As to properties
subsequently
acquired:
GR:
Properties
subsequently
acquired
by
inheritance,
legacy
or
donation, cannot
Publicity
a. Secret partnership – Partnership that is
559
Special Contracts - Partnership
business with some degree of continuity, while
in the latter, it is limited and well-defined, being
confined to an undertaking of a single,
temporary, or ad hoc nature. (De Leon, 2014)
be included in the
stipulation
XPN: Only fruits
thereof can be
included in the
stipulation. (NCC,
Art. 1779)
Q: J, P and B formed a limited partnership
called Suter Co., with P as the general
partner and J and B as limited partners. J
and B contributed Php 18,000 and Php
20,000 respectively. Later, J and B got
married and P sold his share of the
partnership to the spouses which was
recorded in the SEC. Has the limited
partnership been dissolved by reason of the
marriage between the limited partners?
Presumption of universal partnership of
profits
When the Articles of Universal Partnership fail
to specify whether it is one of all present
property or of profits, it only constitutes a
universal partnership of profits (NCC, Art. 1781),
because it imposes lesser obligations on the
partners since they preserve the ownership of
their separate property.
A: NO. The partnership is not a universal but a
particular one. A universal partnership requires
either that the object of the association must be
all present property of the partners as
contributed by them to a common fund, or all
else that the partners may acquire by their
industry or work. Here, the contributions were
fixed sums of money and neither one of them
were industrial partners. Thus, the firm is not a
partnership which the spouses are forbidden to
enter into. The subsequent marriage cannot
operate to dissolve it because it is not one of the
causes provided by law. The capital
contributions were owned separately by them
before their marriage and shall remain to be
separate under the Spanish Civil Code. Their
individual interest did not become common
property after their marriage. (Commissioner of
Internal Revenue v. Suter, G.R. No. L-25532,
February 28, 1969; Heirs of Tang Eng Kee v. CA,
G.R. No. 126881, October 3, 2000)
Persons disqualified from entering into
universal partnership
1.
2.
3.
4.
5.
Legally married spouses. (Family Code, Art.
87) However, they can enter into particular
partnership.
Common law spouses.
Parties guilty of adultery or concubinage.
Criminals convicted for the same offense in
consideration of the same. [NCC, Art. 739
(2)]
A person and a public officer (or his wife,
ascendant or descendants) by reason of his
office. [NCC, Art. 739 (3)]
Contribution of future properties
As a general rule, future properties cannot be
contributed. The very essence of the contract of
partnership that the properties contributed be
included in the partnership requires the
contribution of things determinate. (De Leon,
2014)
GENERAL vs. LIMITED
General partnership
It is a partnership where all partners are
general partners who are liable even with
respect to their individual properties, after the
assets of the partnership have been exhausted.
(Paras, 2016)
Particular partnership
It is one which has for its object determinate
things, their use or fruits, or a specific
undertaking, or the exercise of a profession or
vocation. (NCC, Art. 1783)
General or real partner
He is a partner whose liability to third persons
extends to his separate property; he may be
either a capitalist or an industrial partner. (De
Leon, 2014)
The fundamental difference between a
universal partnership and a particular
partnership lies in the scope of their subject
matter or object. In the former, the object is
vague and indefinite, contemplating a general
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
560
Civil Law
General vs. Limited Partner/Partnership
BASIS
Liability
Right in
Management
Contribution
GENERAL
Personally liable for partnership
obligations.
When manner of management has
not been agreed upon, all general
partners have an equal right in the
management of the business.
Money, property or industry.
If Proper Party
to Proceedings
By or Against
Partnership
Proper party to proceedings1.
by/against partnership.
2.
Assignment of
Interest
Interest is not assignable without
consent of other partners.
LIMITED
Liability extends only to his capital contributions
No participation in management.
Cash or property only, not services.
Not proper party to proceedings by/against
partnership, unless:
(1) He is also a general partner; or
(2) Where the object of the proceeding is to
enforce a limited partner’s right or liability to
the partnership.
Interest is freely assignable.
It must also operate under a firm name, followed
by the word “Limited.”
Firm Name
It must operate under a firm name,
which may or may not include the
name of one or more of the partners.
1.
2.
NOTE: Those, who, not being
members of the partnership, include
their names in the firm name, shall
be subject to the liability of a partner.
(NCC, Art. 1815)
The capitalist partner cannot engage
for their own account in any
operation which is of the kind of
Prohibition to business in which the partnership is
Engage in Other engaged, unless there is a
Business
stipulation to the contrary.
GR: The surname of a limited partner shall not
appear in the partnership name.
XPNs:
(1) It is also the surname of a general partner; or
(2) Prior to the time when the limited partner
became such, the business had been carried on
under a name in which his surname appeared.
NOTE: A limited partner whose surname
appears in a partnership name is liable as a
general partner to partnership creditors who
extend credit to the partnership without actual
knowledge that he is not a general partner.
(NCC, Art. 1846)
No prohibition against engaging in business.
If he is an industrial partner - in any
business for himself.
Effect of
Death,
Insolvency,
Retirement,
Insanity
Retirement,
death,
insolvency,
insanity of general partner dissolves
partnership.
Creation
As a rule, it maybe constituted in
any form, by contract or conduct of
the parties.
Composition/
Membership
Composed only of general partners.
561
Does not have same effect; rights are transferred
to legal representative.
Created by the members after substantial
compliance in good faith of the requirements set
forth by law.
Composed of at least one general partner and
one limited partner.
Special Contracts - Partnership
operate a restaurant business. When the
restaurant had gone past break-even stage
and started to garner considerable profits, C
died. A and B continued the business
without dissolving the partnership. They in
fact opened a branch of the restaurant,
incurring obligations in the process.
Creditors started demanding for the
payment of their obligations.
PARTNERSHIP WITH A FIXED TERM VS.
PARTNERSHIP AT WILL
Partnership with a fixed term
It is one in which the term of its existence has
been agreed upon by the partners either:
1.
2.
Expressly – There is a definite period.
Impliedly – A particular enterprise or
transaction is undertaken.
a.
Who are liable for the settlement of the
partnership’s obligations? Explain.
b. What are the creditors’ recourse/s?
The mere expectation that the business would
be successful and that the partners would be
able to recoup their investment is not sufficient
to create a partnership for a term.
Explain. (2010 BAR)
A:
Fixing the term of the partnership contract
a.
The two remaining partners, A and B, are
liable. When any partner dies and the
business is continued without any
settlement of accounts as between him or
his estate, the surviving partners are held
liable for continuing the business despite
the death of C. (NCC, Arts. 1841, 1785(2) &
1833)
b.
Creditors can file the appropriate actions,
for instance, an action for the collection of
sum of money against the “partnership at
will” and if there are no sufficient funds, the
creditors may go after the private
properties of A and B. (NCC, Art. 816)
Creditors may also sue the estate of C. The
estate is not excused from the liabilities of
the partnership even if C is dead already but
only up to the time that he remained a
partner. [NCC, Arts. 1829, 1835(2)]
However, the liability of C’s individual
property shall be subject first to the
payment of his separate debts. (NCC, Art.
1835)
The partners may fix in their contract any term
and they shall be bound to remain under such a
relation for the duration of the term.
Expiration of the partnership contract
The expiration of the term fixed or the
accomplishment of the particular undertaking
specified will cause the automatic dissolution of
the partnership.
Partnership at will
One in which no fixed term is specified and is
not formed for a particular undertaking or
venture which may be terminated anytime by
mutual agreement of the partners, or by the will
of any one partner alone; or one for a fixed term
or particular undertaking which is continued by
the partners after the termination of such term
or particular undertaking without express
agreement. (De Leon, 2014)
Termination or dissolution of partnership at
will
PARTNERSHIP BY ESTOPPEL
It is one who, by words or conduct does any of
the following:
A partnership at will may be lawfully
terminated or dissolved at any time by the
express will of all or any of the partners.
1.
The partner who wants the partnership
dissolved must do so in good faith, not that the
attendance of bad faith can prevent the
dissolution of the partnership, but to avoid the
liability for damages to other partners.
2.
Q: A, B, and C entered into a partnership to
UNIVERSITY OF SANTO TOMAS
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562
Directly represents himself to anyone as a
partner in an existing partnership or in a
non-existing partnership.
Indirectly represents himself by consenting
to another representing him as a partner in
an existing partnership or in a non-existing
partnership.
Civil Law
Elements before a partner can be held liable
on the ground of estoppel
the custody of the partnership.
NOTE: Partners are solidarily liable with the
partnership for any penalty or damage arising
from a partnership tort.
1. Defendant represented himself as
partner or is represented by others as
such, and did not deny/refute such
representation.
2. Plaintiff relied on such representation.
3. Statement of defendant is not refuted.
PROFESSIONAL PARTNERSHIP
It is a partnership formed by persons for the
sole purpose of exercising their common
profession, no part of the income of which is
derived from engaging in any trade or business.
Liabilities in case of estoppel
When Partnership is
Liable
If all actual partners consented to the
representation, then the liability of the person
who represented himself to be a partner or who
consented to such representation and the
actual partner is considered a partnership
liability. (De Leon, 2014)
When Liability is PRO
RATA
When there is no existing partnership and all
those represented as partners consented to the
representation, then the liability of the person
who represented himself to be a partner, and
all who made and consented to such
representation, is joint or pro- rata. (De Leon,
2014)
When Liability is
SEPARATE
When there is no existing partnership and not
all but only some of those represented as
partners consented to the representation, or
none of the partnership in an existing
partnership consented to such representation,
then the liability will be separate. (De Leon,
2014)
In a professional partnership, it is the individual
partners who are deemed engaged in the
practice of profession and not the partnership.
Thus, they are responsible for their own acts.
Prohibition in the formation
professional partnership
Prohibition in the firm name
partnership for the practice of law
3.
of
a
In the selection and use of firm name, no false,
misleading, assumed, or trade names should be
used. (Canon 3, Code of Professional
Responsibility)
MANAGEMENT OF THE PARTNERSHIP
Modes of appointment of a manager
Appointment through Appointment other
the Articles of
than in the Articles
Partnership
Power is irrevocable
Power to act is
without
just
or
revocable
anytime,
lawful cause.
with or without
cause (should be
NOTE: Vote required done
by
the
for
removal
of controlling interest).
manager:
1. For just cause –
Vote
of
the
controlling
partners
(controlling
There is a partnership tort where:
2.
a
Partnership between lawyers and members of
other profession or non-professional persons
should not be formed or permitted where any
part of the partnership’s employment consists
of the practice of law. (Canon 9, Code of
Professional Responsibility)
Partnership Tort
1.
of
By any wrongful act or omission of any
partner, acting in the ordinary course of
business of the partnership or with
authority of his co-partners, loss or injury is
caused to any person, not being a partner in
the partnership;
One partner, acting within the scope of his
apparent authority, receives money or
property from a third person, and
misapplies it; or
The partnership, in the course of its
business, receives money or property, and
it is misapplied by any partner while it is in
563
Special Contracts - Partnership
financial
interest).
2. Without cause or
for unjust cause
–
Unanimous
vote.
Extent of Power
1. If he acts in good As long as he is a
faith, he may do
manager, he can
all
acts
of
perform all acts of
administration
administration
(if
(despite
others oppose, he
opposition of his
can be removed).
partners);
2. If he acts in bad
faith, he cannot.
GR: Unanimous consent of all the managing
partners shall be necessary for the validity of
the acts and absence or inability of any
managing partner cannot be alleged.
XPN: Where there is an imminent danger of
grave or irreparable injury to the partnership.
Rule when the manner of management has
not been agreed upon
1.
Scope of the power of a managing partner
As a general rule, a partner appointed as
manager has all the powers of a general agent
as well as all the incidental powers necessary to
carry out the object of the partnership in the
transaction of its business. The exception is
when the powers of the manager are
specifically restricted. (De Leon, 2014)
All partners shall be considered agents and
whatever any one of them may do alone
shall bind the partnership, without
prejudice to the provisions of Art. 1801 of
the NCC. This right is not dependent on the
amount or size of the partner’s capital
contribution or services to the business.
NOTE: If two or more partners have been
entrusted with the management of the
partnership without specification of their
respective duties, or without a stipulation
that one of them shall not act without the
consent of all the others, each one may
separately
execute
all
acts
of
administration, but if any of them should
oppose the acts of the others, the decision
of the majority shall prevail. In case of a tie,
the matter shall be decided by the partners
owning the controlling interest. (NCC, Art.
1801; 1992 BAR)
Rule where there are two or more managers
Without specification of their respective
duties and without stipulation requiring
unanimity of
action
GR: Each may separately execute all acts of
administration
(unlimited
power
to
administer).
2.
XPN: If any of the managers opposes, decision
of the majority prevails.
None of the partners may, without the
consent of the others, make any important
alteration in the immovable property even
if it may be useful to the partnership. (NCC,
Art. 1802-1803)
Rule in case where unanimity of action is
stipulated
NOTE: In case of tie – Decision of the controlling
interest (who are also managers) shall prevail.
NOTE: If refusal of partner is manifestly
prejudicial to the interest of partnership, the
court’s intervention may be sought.
With stipulation that none of the managing
partners shall act without the consent of the
others
COMPENSATION
GR: In the absence of an agreement to the
contrary, each member of the partnership
assumes the duty to give his time, attention, and
skill to the management of its affairs, so far, at
least, as may be reasonably necessary to the
success of the common enterprise; and for this
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
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Civil Law
service a share of the profits is his only
compensation.
himself (NCC, Art. 1789);
Contribute additional capital (NCC, Art.
1791);
5. Managing partner who collects debt (NCC,
Art. 1792);
6. Partner who receives share of partnership
credit (NCC, Art. 1793);
7. Damages to partnership (NCC, Art. 1794);
8. Keep the partnership books (NCC, Art.
1805);
9. Render information (NCC, Art. 1806); and
10. Accountable as fiduciary. (NCC, Art. 1807)
4.
XPNs:
1.
2.
3.
4.
5.
A partner engaged by his co-partners to
perform services not required of him in
fulfillment of the duties which the
partnership relation imposes and in a
capacity other than that of a partner;
A contract for compensation may be
implied if there is extraordinary neglect on
the part of one partner to perform his
duties toward the firm’s business, thereby
imposing the entire burden on the
remaining partner;
One partner may employ his co-partner to
do work for him outside of and
independent of the co- partnership, and
become personally liable therefor;
Where the services rendered are extraordinary; and
Where one partner is entrusted with the
management of the partnership business
and devotes his whole time and attention
thereto, at the instance of the other
partners who are attending to their
individual business and giving no time or
attention to the business of the firm. (De
Leon, 2014)
Withdrawal or disposal of money
property by a contributing partner
Money or property contributed by a partner
cannot be withdrawn or disposed of by the
contributing partner without the consent or
approval of the partnership or of the other
partners because the money or property
contributed by a partner becomes the property
of the partnership. (De Leon, 2014)
Q: Who bears the risk of loss of things
contributed?
A:
KIND OF PROPERTY / THING
RIGHTS AND OBLIGATIONS OF
PARTNERSHIP
1.
2.
3.
Specific
and
determinate
things which are not fungible
where only the use is
contributed
Refund the amounts disbursed by partner in
behalf
of
the
partnership
plus
corresponding interest from the time the
expenses are made, not from the date of
demand (e.g. loans and advances made by a
partner to the partnership aside from
capital contribution);
Answer for obligations the partner may
have contracted in good faith in the interest
of the partnership business; and
Answer for risks in consequence of its
management. (NCC, Art. 1796)
Specific
and
determinate
things the ownership of which
is
transferred
to
the
partnership
Fungible things (Consumable)
Partners
Partnership
Effects if a partner fails to contribute the
property which he promised to deliver to
the partnership
1.
Obligations of partners among themselves
3.
WHO BEARS
THE RISK?
Things brought and appraised
in the inventory
RIGHTS AND OBLIGATIONS OF PARTNERS
AMONG THEMSELVES
1.
2.
or
2.
Contribution of property (NCC, Art. 1786);
Contribution of money and money
converted to personal use (NCC, Art. 1788);
Prohibition in engaging in business for
565
Partner becomes ipso jure a debtor of the
partnership even in the absence of any
demand. (NCC, Art. 1786)
Remedy of the other partner is not
rescission but specific performance with
damages and interest from defaulting
partner from the time he should have
Special Contracts - Partnership
complied with his obligation.
his interest to the other partners.
When the capital or a part hereof which a
partner is bound to contribute consists of goods,
their appraisal must be made in the manner
prescribed in the contract of partnership, and
in the absence of stipulation, it shall be current
prices, the subsequent changes thereof being
for the account of the partnership. (NCC, Art.
1787)
Requisites before capitalist partners are
compelled to contribute additional capital
1.
2.
3.
Rules regarding contribution of money to
the partnership
1.
2.
3.
4.
4.
To contribute on the date fixed the amount
the partner has undertaken to contribute to
the partnership;
To reimburse any amount the partner may
have taken from the partnership coffers
and converted to his own use;
To indemnify the partnership for the
damages caused to it by delay in the
contribution or conversion of any sum for
the partner’s personal benefit;
To pay the agreed or legal interest, if the
partner fails to pay his contribution on time
or in case he takes any amount from the
common fund and converts it to his own
use.
Imminent loss of the business of the
partnership;
Majority of the capitalist partners are of the
opinion that an additional contribution to
the common fund would save the business;
Capitalist partner refuses deliberately to
contribute (not due to financial inability);
and
There is no agreement to the contrary.
NOTE: The refusal of the partner to contribute
his additional share reflects his lack of interest
in the continuance of the partnership. (De Leon,
2014) It shall be obliged to sell his interest to
the other partners except if there is an
agreement to the contrary. (NCC, Art. 1791)
It is to be noted that the industrial partner is
exempted from the requirement to contribute
an additional share. Having contributed his
entire industry, he can do nothing further. (De
Leon, 2014)
Obligations of managing partners who
collect his personal receivable from a
person who also owes the partnership
Rule regarding obligation to contribute to
partnership capital
Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the
capital of the partnership. (NCC, Art. 1790) It is
not applicable to an industrial partner unless,
besides his services, he has contributed capital
pursuant to an agreement.
1.
Apply sum collected to 2 credits in
proportion to their amounts
2.
If he received it for the account of
partnership, the whole sum shall be applied
to partnership credit
Liability of a capitalist partner to contribute
additional capital
Requisites:
At least 2 debts, one where the collecting
partner is creditor and the other, where the
partnership is the creditor:
GR: A capitalist partner is not bound to
contribute to the partnership more than what
he agreed to contribute.
XPNs:
1.
2.
In case of imminent loss of the business;
and
There is no agreement to the contrary.
Both debts are demandable; and
2.
Partner who collects is authorized to
manage and actually manages the
partnership.
NOTE: The debtor is given the right to prefer
payment of the credit of the partner if it should
be more onerous to him in accordance with his
right to application of payment. (NCC, Art. 1252;
He is under obligation to contribute an
additional share to save the venture. If he
refuses to contribute, he shall be obliged to sell
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
1.
566
Civil Law
behalf of an unincorporated association or
ostensible corporation may lie in a person who
may not have directly transacted on its behalf,
but reaped benefits from that contract. (Lim
Tong Lim v. Philippine Fishing Gear Industries
Inc., G.R. No. 136448, November 3, 1999)
INDUSTRIAL
CAPITALIST
PARTNER
PARTNER
Prohibition
Absolute:
Cannot Relative:
Cannot
engage in business for engage in business
himself unless the (with same kind of
partnership expressly business with the
permits him to do so.
partnership) for his
own account, unless
there is a stipulation
to the contrary.
Remedy
Capitalist
partners Capitalist partner, who
may:
violated shall:
1. Exclude him from 1. Bring
to
the
the firm; or
common fund any
2. Avail themselves
profits accruing to
of the benefits
him from said
which he may
transaction; and
have
obtained; 2. Personally bears
Damages, in either
all losses. (NCC,
case. (NCC, Art.
Art. 1808; 2001
1789; 2001 BAR)
BAR)
De Leon, 2014)
Rules regarding the prohibition to engage in
another business
Q: Joe and Rudy formed a partnership to
operate a car repair shop in Quezon City. Joe
provided the capital while Rudy contributed
his labor and industry. On one side of their
shop, Joe opened and operated a coffee shop,
while on the other side, Rudy put up a car
accessories store. May they engage in such
separate businesses? Why? (2001 BAR)
A: Joe, the capitalist partner, may engage in the
restaurant business because it is not the same
kind of business the partnership is engaged in.
On the other hand, Rudy may not engage in any
other business unless their partnership
expressly permits him to do so because as an
industrial partner, he has to devote his full time
to the business of the partnership. (NCC, Art.
1789)
Reason for applying payment to partnership
credit
The law safeguards the interests of the
partnership by preventing the possibility of
their being subordinated by the managing
partner to his own interest to the prejudice of
the other partners. (De Leon, 2014)
Rule with regard to the obligation of a
partner as to damages suffered by the
partnership through his fault
GR: Every partner is responsible to the
partnership for damages suffered by it through
his fault and he cannot compensate them with
the profits and benefits which he may have
earned for the partnership by his industry.
Obligation of a partner who receives share
of partnership credit
To bring to the partnership capital what he has
received even though he may have given receipt
for his share only.
XPN: The courts may equitably lessen this
responsibility if through the partner’s
extraordinary efforts in other activities of the
partnership, unusual profit has been realized.
(NCC, Art. 1794)
Requisites:
1.
2.
3.
A partner has received in whole or in part,
his share of the partnership credit;
Other partners have not collected their
shares; and
Partnership debtor has become insolvent.
Set-off of damages caused by a partner
GR: The damages caused by a partner to the
partnership cannot be offset by the profits of
benefits which he may have earned for the
partnership by his industry.
Liability of a person who has not directly
transacted in behalf of an unincorporated
association for a contract entered into by
such association
Ratio: The partner has the obligation to secure
benefits for the partnership. Hence, the profits
which he may have earned pertain as a matter
of law or right, to the partnership
The liability for a contract entered into on
567
Special Contracts - Partnership
XPN: If unusual profits are realized through the
profits derived by him without the consent of
the other partners from any transaction
connected with the formation, conduct, or
liquidation of the partnership or from any use
by him of its property. (NCC, Art. 1807)
extraordinary efforts of the partner at fault, the
courts may equitably mitigate or lessen his
liability for damages. This rule rests on equity.
Duty of a partner to act with utmost good
faith towards co-partners continues even
after dissolution
Note that even in this case, the partner at fault
is not allowed to compensate such damages
with the profits earned. The law does not
specify as to when profits may be considered
“unusual.” The question depends upon the
circumstances of the particular case.
The duty of a partner to act with utmost good
faith towards his co-partners continues
throughout the entire life of the partnership
even after dissolution for whatever reason or
whatever means, until the relationship is
terminated, i.e., the winding up of partnership
affairs is completed. (De Leon, 2014)
Duty of the partners with respect to keeping
the partnership books
The partnership books shall be kept, subject to
any agreement between partners, at the
principal place of business of the partnership.
(NCC, Art. 1805)
Failure to disclose facts, when there is a duty to
reveal them, as when parties are bound by
confidential relations, constitutes fraud. (NCC,
Art. 1339)
Duty to keep partnership book belongs to
managing or active partner
RIGHTS OF PARTNERS
The duty to keep true and correct books
showing the firm’s accounts, such books being
at all times open to inspection of all members of
the firm, primarily rests on the managing or
active partner or the particular partner given
record-keeping duties. (NCC, Art. 1805; De Leon,
2014)
Duty of the partners with respect to
information affecting the partnership
1.
Right to reimbursement for amounts
advanced to the partnership and to
indemnification for risks in consequence of
management (NCC, Art. 1796);
2.
Right on the distribution of profits and
losses (NCC, Art. 1797);
3.
Right to associate another person with him
in his share without the consent of the other
partners (NCC, Art. 1804);
Partners shall render on demand true and full
information of all things affecting the
partnership to:
1.
2.
NOTE: Such partnership formed between a
member of a partnership and a third person
for a division of the profits coming to him
from the partnership enterprise is termed
sub-partnership. (De Leon, 2014)
Any partner; or
Legal representative of any deceased or any
partner under legal disability. (NCC, Art.
1806)
NOTE: Under the same principle of mutual trust
and confidence among partners, there must be
no concealment between them in all matters
affecting the partnership. The information, to be
sure, must be used only for a partnership
purpose. (De Leon, 2014)
Right to free access and to inspect and copy
at any reasonable hour the partnership
books (NCC, Art. 1805);
5.
Right to formal account as to partnership
affairs:
a.
Accountability of partners to each other as
fiduciary
Every partner must account to the partnership
for any benefit, and hold as trustee for it any
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
4.
b.
568
If he is wrongfully excluded from
the partnership business or
possession of its property by his
co-partners;
If the right exist under the terms of
any agreement;
Civil Law
c.
d.
Duty to account as provided by Art.
1807;
Whenever there are circumstances
render it just and reasonable;
6.
Right to have the partnership dissolved;
and
7.
Property rights of a partner. (NCC, Art.
1810)
NOTE: The fact that some of the assets of the
partnership are real property does not
materially change the nature of the action. It is
an action in personam because it is an action
against a person for the performance of a
personal duty on his part, and not an action in
rem where the action is against the thing itself.
It is only incidental that part of the assets of the
partnership subject to accounting or under
liquidation happen to be real property. (Emnace
v. CA, G.R. No. 126334, November 23, 2001)
Rule as to formal accounting during the
existence of the partnership
Rules regarding distribution of profits and
losses
GR: During the existence of the partnership, a
partner is not entitled to a formal account of
partnership affairs.
a.
Distribution of Profits
i.
XPN: However, in special and unusual situations
enumerated under Art. 1809, the justification
for a formal accounting even before dissolution
of the partnership cannot be doubted. An
example under No. (4) of Art. 1809 is where a
partner has been assigned abroad for a long
period of time in connection with the
partnership business and the partnership books
during such period being in the possession of
the other partners.
ii.
The partners share in the profits
according to their agreement.
In the absence of such:
a. Capitalist
partner
–
in
proportion to his contribution
b. Industrial partner – what is just
and equitable under the
circumstances
NOTE: If the industrial partner has contributed
capital other than his services, he shall also
receive a share in the profits in proportion to his
capital.
Partners’ inspection rights
The partners’ inspection rights are not absolute.
He can be restrained from using the information
gathered for other than partnership purpose.
b.
Distribution of Losses
i.
“Any reasonable hour”
ii.
The rights of the partners with respect to
partnership books can be exercised at “any
reasonable hour.” (NCC, Art. 1805) This phrase
has been interpreted to mean reasonable hours
on business days throughout the year and not
merely during some arbitrary period of a few
days chosen by the managing partners.
iii.
The partners share in the losses
according to their agreement.
In the absence of such, according to
their agreement as to profits.
In the absence of profit agreement,
in proportion to his capital
contribution.
Q: “X” used his savings from his salaries
amounting to a little more than P2,000 as
capital in establishing a restaurant. “Y” gave
the amount of P4,000 to “X” as “financial
assistance” with the understanding that “Y”
would be entitled to 22% of the annual
profits derived from the operation of the
restaurant. After the lapse of 22 years, “Y”
filed a case demanding his share in the said
profits. “X” denied that there was a
partnership and raised the issue of
prescription as “Y” did not assert his rights
anytime within ten (10) years from the start
of the operation of the restaurant. Is “Y” a
Action for accounting
An action for accounting, asking that the assets
of the partnership be accounted for, sold and
distributed according to the agreement of the
partners is a personal action which under the
Rules of Court, may be commenced and tried
where the defendant resides or may be found or
where the plaintiffs reside, at the election of the
latter.
569
Special Contracts - Partnership
partner of “X” in the business? Why? What is
the nature of the right to demand one’s
share in the profits of a partnership? Does
this right prescribe? (1989 BAR)
3.
4.
A: YES, because there is an agreement to
contribute to a common fund and intent to
divide profits. It is founded upon an express
trust. It is imprescriptible unless repudiated.
5.
Effects of assignment of partner’s whole
interest in the partnership
Rule regarding a stipulation excluding a
partner in the sharing of profits and losses
1.
GR: Such stipulation is void. (NCC, Art. 1799)
2.
NOTE: Loss is different from liability.
Right in specific partnership property;
Interest in the partnership (share in the
profits and surplus); and
Right to participate in the management.
(NCC, Art. 1803)
Related rights to the property rights of a
partner
1.
2.
3.
4.
5.
Right to the partnership and to
indemnification for risks in consequence of
management (NCC, Art. 1796);
The right of access and inspection of
partnership books (NCC, Art. 1805);
The right to true and full information of all
things affecting the partnership (NCC, Art.
1806);
The right to a formal account of partnership
affairs under certain circumstances (NCC,
Art. 1809); and
The right to have the partnership dissolved
also under certain conditions. (NCC Arts.
1830-1831; De Leon, 2014)
Q: Rosa received money from Jois, with the
express obligation to act as Jois’ agent in
purchasing local cigarettes, to resell them to
several stores, and to give Jois the
commission corresponding to the profits
received. However, Rosa misappropriated
and converted the said amount due to Jois to
her personal use and benefit. Jois filed a case
of estafa against Rosa. Can Rosa deny
liability on the ground that a partnership
was formed between her and Rosa?
Nature of a partner’s right in specific
partnership property
1.
2.
A: NO. Even assuming that a contract of
partnership was indeed entered into by and
between the parties, when a partner receives
any money or property for a specific purpose
(such as that obtaining in the instant case) and
he later misappropriates the same, he is guilty
Equal right to possession for partnership
purposes;
Right is not assignable, except in
connection with assignment of rights of all
partners in the same property;
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Rights of assignee on partner’s interest:
a. To receive in accordance with his
contract the profits accruing to the
assigning partner;
b. To avail himself of the usual
remedies provided by law in the
event of fraud in the management;
c. To receive the assignor’s interest in
case of dissolution; and
d. To require an account of
partnership affairs, but only in case
the partnership is dissolved, and
such account shall cover the period
from the date only of the last
account agreed to by all the
partners.
Property rights of a partner
3.
Rights withheld from the assignee: Such
assignment does not grant the assignee the
right to:
a. To interfere in the management;
b. To require any information or
account; and
c. To inspect partnership books.
XPN: Industrial partner is not liable for losses.
[NCC, Art. 1797(2)] However, he is not
exempted from liability insofar as third persons
are concerned.
1.
2.
Right is limited to his share of what
remains after partnership debts have been
paid;
Right is not subject to attachment or
execution except on a claim against the
partnership; and
Right is not subject to legal support
570
Civil Law
of estafa. (Liwanag v. CA, G.R. No. 114398,
October 24, 1997)
liable to 3rd persons for the partner's tort or
breach of trus.t (NCC, Art. 1822-24)
OBLIGATIONS OF PARTNERSHIP/ PARTNERS
TO THIRD PERSONS
8.
Liability of incoming partner is limited to:
a.
1.
Every partnership shall operate under a
firm name. (NCC, Art. 1815)
2.
All partners shall be liable for contractual
obligations of the partnership with their
property, after all partnership assets have
been exhausted:
a.
b.
b.
9.
Pro rata
Subsidiary (NCC, Art. 1816; 1993,
2010 BAR)
NOTE: Any stipulation against the
liability laid down in Art. 1816 shall be
void except as among the partners.
(NCC, Art. 1817)
Partner as an agent of the partnership.
(NCC, Art. 1818; 1994 BAR)
4.
Conveyance of real property belonging to
the partnership. (NCC, Art. 1819)
5.
Admission or representation made by any
partner concerning partnership affairs
within the scope of his authority is evidence
against the partnership. (NCC, Art. 1820)
6.
Notice to partner of any matter relating to
partnership affairs operates as notice to
partnership except in case of fraud:
a.
b.
c.
7.
Creditors of partnership are preferred in
partnership property & may attach
partner's share in partnership assets. (NCC,
Art. 1827)
NOTE: On solidary liability, Art. 1816 should be
construed together with Art. 1824. (in
connection with Arts. 1822 & 1823) While the
liability of the partners is merely joint in
transactions entered into by the partnership, a
third person who transacted with said
partnership may hold the partners solidarily
liable for the whole obligation if the case of the
third person falls under Articles 1822 and 1823.
(Guy v. Gacott, G.R. No. 206147, January 13,
2016)
XPN: All partners shall be liable
solidarily with the partnership for
everything
chargeable
to
the
partnership under Art. 1822 and 1823.
(NCC, Art. 1824)
3.
His share in the partnership
property for existing obligations
His
separate
property
for
subsequent obligations. (NCC, Art.
1826)
Q: A, B and C formed a partnership for the
purpose of contracting with the Government
in the construction of one of its bridges. On
June 30, 1992, after completion of the
project, the bridge was turned over by the
partners to the Government. On August 30,
1992, D, a supplier of materials used in the
project sued A for collection of the
indebtedness to him. A moved to dismiss the
complaint against him on the ground that it
was the ABC partnership that is liable for the
debt. D replied that ABC partnership was
dissolved upon completion of the project for
which purpose the partnership was formed.
Will you dismiss the complaint against B if
you were the judge? (1993 BAR)
Knowledge of partner acting in the
particular matter acquired while a
partner
Knowledge of the partner acting in
the particular matter then present
to his mind
Knowledge of any other partner
who reasonably could and should
have communicated it to the acting
partner. (NCC, Art. 1821)
A: NO. As Judge, I would not dismiss the
complaint against A because A is still liable as a
general partner for his pro rata share of 1/3.
(NCC, Art. 1816) Dissolution of a partnership
caused by the termination of the particular
undertaking specified in the agreement does
not extinguish obligations, which must be
liquidated during the “winding up" of the
partnership affairs. [NCC, Art. 1829 & 1830
(1)(a)]
Partners and the partnership are solidarily
571
Special Contracts - Partnership
Importance of having a firm name
Remedies available to the creditors of a
partner
A partnership must have a firm name under
which it will operate. It is necessary to
distinguish the partnership which has a distinct
and separate juridical personality from the
individuals composing the partnership and from
other partnerships and entities. (De Leon, 2014)
Liability for the inclusion of name in the firm
name
Persons who, not being partners, include their
names in the firm name do not acquire the
rights of a partner but under Art. 1815, they
shall be subject to the liability of a partner (NCC,
Art. 1816) insofar as third persons without
notice are concerned. (De Leon, 2014)
1.
Separate or individual creditors should first
secure a judgment on their credit; and
2.
Apply to the proper court for a charging an
order subjecting the interest of the debtorpartner in the partnership for the payment
of the unsatisfied amount of the judgment
debt with interest thereon. (De Leon, 2014)
NOTE: The court may resort to other courses of
action provided in Art. 1814 of the NCC, (i.e.,
appointment of receiver, sale of the interest, etc.)
if the judgment debt remains unsatisfied,
notwithstanding the issuance of charging order.
(De Leon, 2014)
Effects of the acts of partners acting as an agent of the partnership
ACTS OF A PARTNER
EFFECT
With binding effect except:
1.
Acts for apparently carrying on in the usual
way the business of the partnership
2.
Acts not in the ordinary course of business
When the partner so acting has in fact no
authority to act for the partnership in the
particular matter, and
The person with whom he is dealing has knowledge
of the fact that he has no such authority. [NCC, Art.
1818(1)]
Do not bind partnership unless authorized by other
partners. [NCC, Art. 1818(2)]
Acts of strict dominion or ownership:
1.
2.
3.
4.
5.
6.
7.
Assigning partnership property in trust for
creditors;
Disposing of goodwill of business;
Doing an act which would make it
impossible to carry on the ordinary
business of partnership;
Confessing a judgment;
Entering into a compromise concerning a
partnership claim or liability;
Submitting partnership claim or liability to
arbitration;
Renouncing claim of partnership.
GR: One or more but less than all the partners have no
authority.
XPNs:
1. Authorized by the other partners; or
2. Partners have abandoned the business. [NCC, Art.
1818(3)]
Acts in contravention of a restriction on
Partnership is not liable to 3rd persons having actual or
authority
presumptive knowledge of the restriction. [NCC, Art.
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
572
Civil Law
1818(4)]
Effect of conveyance of a real property
TYPE OF CONVEYANCE
EFFECT
Conveyance passes title but partnership can recover
unless:
1.
Title
in
the
partnership’s
Conveyance in partnership name
name;
2.
Conveyance was done in the usual way of business,
and
the partner so acting has the authority to act for the
partnership; or
The property which has been conveyed by the
grantee or a person claiming through such grantee to
a holder for value without knowledge that the
partner, in making the conveyance, has exceeded his
authority. (De Leon, 2014)
Conveyance does not pass title but only equitable
interest, provided:
Title
in
the
partnership’s
Conveyance in partner’s name
name;
a.
b.
Title in the name of one (1) or more
partners, and the record does not disclose
the right of the partnership; Conveyance in
name of partner/s in whose name title
stands
Title in name of one (1) or more or all
partners or 3rd person in trust for
partnership; Conveyance executed in
partnership name or in name of partners
Title in the names of all the partners;
Conveyance executed by all the partners
Conveyance was done in the usual way of business,
or
The partner so acting has the authority to act for the
partnership. (De Leon, 2014)
Conveyance passes title but the partnership may
recover such property if the partners’ act does not bind
the partnership:
1. The partner so acting has no authority to act for the
partnership, and
2. The person with whom he is dealing has knowledge
of the fact unless the purchaser of his assignee, is a
holder for value, without knowledge. (De Leon,
2014)
Conveyance will only pass equitable interest, provided:
1.
2.
The act is one within the authority of the partner,
and
Conveyance was done in the usual way of the
business. (De Leon, 2014)
Conveyance will pass all the rights in such property. (De
Leon, 2014)
573
Special Contracts - Partnership
c.
DISSOLUTION AND WINDING UP
DISSOLUTION (2010 BAR)
Final stages of partnership
1.
2.
3.
Dissolution;
Winding up; and
Termination.
d.
2.
3.
4.
Dissolution, winding-up, and termination
Dissolution
Winding
Termination
Violating the agreement;
Unlawfulness of the business;
Loss;
a.
up
b.
A change in
the relation of
the partners
caused by any
partner
ceasing to be
associated in
carrying
on
the business.
Partners
cease to carry
on
the
business
together.
It
represents the
demise of a
partnership.
Thus,
any
time a partner
leaves
the
business, the
partnership is
dissolved.
Settling
the
partnership
business
or
affairs
after
dissolution.
It is the final
step
after
dissolution in
the
termination of
the
partnership.
Point in time
when
all
partnership
affairs
are
completely
wound up or
completed;
the end of the
partnership
life.
5.
6.
7.
8.
It signifies the
end of the
partnership
life. It takes
place
after
both
dissolution
and winding
up
have
occurred.
b.
b.
c.
d.
e.
f.
A partner has been declared insane
or of unsound mind
A partner becomes in any other
way incapable of performing his
part of the partnership contract
A partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business
A partner willfully or persistently
commits a breach of the
partnership agreement
The business of the partnership
can only be carried on at a loss
Other circumstances render a
dissolution equitable.
Effects of dissolution (2010 BAR)
Termination of the definite term or
specific undertaking
Express will of any partner in good
faith, when there is no definite
term and no specified undertaking
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Death of any of the partners;
Insolvency of any partner or of the
partnership;
Civil interdiction of any partner; and
By decree of court under Art. 1831
a.
Without violating the agreement:
a.
Specific
thing
promised
as
contribution is lost or perished
before delivery
Loss of a specific thing contributed
before or after delivery, if only the
use of such is contributed
NOTE: The partnership shall not be
dissolved by the loss of the thing when
it occurs after the partnership has
acquired the ownership thereof.
Causes of dissolution (NCC, Art. 1830)
1.
Express will of all partners (except
those who have assigned their
interests or suffered them to be
charged for their separate debts)
either before or after the
termination of any specified term
or particular undertaking
Expulsion of any partner in good
faith of a member;
1.
2.
3.
574
Partnership is not terminated;
Partnership continues for a limited
purpose;
Transaction of new business is prohibited.
(De Leon, 2014)
Civil Law
As to previous obligations, the dissolution of
partnership does not mean that the partners
can evade previous obligations entered into.
(Realubit v. Jaso, G.R. No. 178782, September 21,
2011)
completing transactions begun but not then
finished. (NCC, Art. 1832)
NOTE: Subject to the qualifications set forth in
Articles 1833 and 1834 in relation to Article
1832:
As to new obligations, the dissolution spares
the former partners from new obligations
entered into by the partnership without their
consent, implied or express, unless the
obligation are essential for the winding up of
partnership affairs. (Ibid.)
NOTE: The dissolution of a partnership must
not be understood in the absolute and strict
sense so that at the termination of the object for
which it was created the partnership is
extinguished, pending the winding up of some
incidents and obligations of the partnership, but
in such case, the partnership will be reputed as
existing until the juridical relations arising out
of the contract are dissolved. (Realubit v. Jaso,
G.R. No. 178782, September 21, 2011)
1.
In so far as the partners themselves are
concerned – The authority of any partner to
bind the partnership by a new contract is
immediately
terminated
when
the
dissolution is not by the act, insolvency, or
death of a partner.
2.
When the dissolution is by the act,
insolvency, or death, the termination of
authority depends upon whether or not the
partner had knowledge or notice of
dissolution. (NCC, Art. 1833; 2010 BAR)
Q: Tomas, Rene and Jose entered into a
partnership under the firm name “Manila
Lumber.” Subsequently, upon mutual
agreement, Tomas withdrew from the
partnership and the partnership was
dissolved. However, the remaining partners,
Rene and Jose, did not terminate the
business of “Manila Lumber.” Instead of
winding up the business of the partnership
and liquidating its assets, Rene and Jose
continued the business in the name of
“Manila Lumber” apparently without
objection from Tomas. The withdrawal of
Tomas from the partnership was not
published in the newspapers. Could Tomas
be held liable for any obligation or
indebtedness Rene and Jose might incur
while doing business in the name of “Manila
Lumber” after his withdrawal from the
partnership? Explain. (1987 BAR)
Dissolution does not automatically result in the
termination of the legal personality of the
partnership, nor the relations of the partners
among themselves who remain as co-partners
until the partnership is terminated. (De Leon,
2014)
A partner cannot be expelled from the
partnership without agreement thereto.
In the absence of an express agreement to that
effect, there exists no right or power of any
member, or even a majority of the members, to
expel all other members of the firm at will. Nor
can they at will forfeit the share or interest of a
member or members and compel him or them
to quit the firm, even paying what is due him.
A: YES. Tomas can be held liable under the
doctrine of estoppel. But as regards the parties
among themselves, only Rene and Jose are
liable. Tomas cannot be held liable since there
was no proper notification or publication. In the
event that Tomas is made to pay the liability to
third person, he has the right to seek
reimbursement from Rene and Jose.
The expulsion has the effect of decreasing the
number of the partners, hence, the dissolution.
The expulsion must be made in good faith. The
partner expelled in bad faith can claim
damages. (De Leon, 2014)
Effect of dissolution on the authority of a
partner
Q: The articles of co-partnership provide
that in case of death of one partner, the
partnership shall not be dissolved but shall
be continued by the deceased partner’s
heirs. When H, a partner, died, his wife, W,
took over the management of some of the
GR: The partnership ceases to be a going
concern.
XPN: The partner’s power of representation is
confined only to acts incident to winding up or
575
Special Contracts - Partnership
real properties with permission of the
surviving partner, X, but her name was not
included in the partnership name. She
eventually sold these real properties after a
few years. X now claims that W did not have
the authority to manage and sell those
properties as she was not a partner. Is the
sale valid?
if dissolution had not taken place, provided
the other party/obligee:
a.
b.
A: YES. The widow was not a mere agent,
because she had become a partner upon her
husband's death, as expressly provided by the
articles of co-partnership, and by authorizing
the widow to manage partnership property, X
recognized her as a general partner with
authority to
administer
and
alienate
partnership property. It is immaterial that W's
name was not included in the firm name, since
no conversion of status is involved, and the
articles
of
co-partnership
expressly
contemplated the admission of the partner's
heirs into the partnership. (Goquiolay v. Sycip,
G.R. No. L-11840, December 16, 1963)
XPNs: Partner cannot bind the partnership
anymore after dissolution:
1.
2.
3.
Liability of a partner where the dissolution
is caused by the act, death or insolvency of a
partner
4.
GR: Each partner is liable to his co-partners for
his share of any liability created by any partner
for the partnership, as if the partnership had
not been dissolved.
2.
b.
The dissolution, being by act of any partner,
the partner acting for the partnership had
knowledge of the dissolution; or
The dissolution, being by the death or
insolvency of a partner, the partner acting
for the partnership had knowledge or
notice of the death or insolvency. (NCC, Art.
1833; 2010 BAR)
5.
Q: After the dissolution of a partnership, can
a partner still bind the partnership?
GR: A partner continues to bind partnership
even after dissolution in the following cases:
2.
Had extended credit to partnership
prior to dissolution; AND Had no
knowledge or notice of dissolution;
or
Did not extend credit to partnership
prior to dissolution; Had known
partnership prior to dissolution;
AND Had no knowledge/notice of
dissolution/fact of dissolution not
advertised in a newspaper of
general circulation in the place
where partnership is regularly
carried on [Art. 1834(3)]; or
Completely new transactions which would
bind the partnership if dissolution had not
taken place with third persons in bad faith.
Q: Does the dissolution of a partnership
discharge existing liability of a partner?
A:
1.
Where dissolution is due to unlawfulness to
carry on the business; or
Where the partner has become insolvent;
or
Act is not appropriate for winding up or for
completing unfinished transactions; or
Partner is unauthorized to wind up
partnership affairs, except by transaction
with one who:
a.
XPNs: Partners shall not be liable when:
1.
Had extended credit to partnership
prior to dissolution; and had no
knowledge/notice of dissolution; or
Did not extend credit to partnership;
Had known of the partnership prior
to dissolution; AND Had no
knowledge/notice of dissolution/fact
of dissolution not advertised in a
newspaper of general circulation in
the place where partnership is
regularly carried on. [NCC, Art. 1834
(1) & (2)]
A:
GR: Dissolution does not discharge the existing
liability of a partner. [Art. 1835(1)]
Transactions to wind up partnership affairs
or to complete transactions unfinished at
dissolution;
Transactions which would bind partnership
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
XPN: Said liability is discharged when there is
576
Civil Law
an agreement between:
partnership business or affairs are being
settled. (De Leon, 2014)
1. Partner himself;
2. Person/s continuing the business; and
3. Partnership creditors. [NCC, Art.
1835(2)]
Ways of winding up
The winding up of the dissolved partnership
may be done either:
Liability of the estate of a deceased partner
1.
In accordance with Article 1816, the individual
property of a deceased partner shall be liable
for all obligations of the partnership incurred
while he was a partner. Note that the individual
creditors of the deceased partner are to be
preferred over partnership creditors with
respect to the separate property of said
deceased partner. (De Leon, 2014)
2.
Action for liquidation
Order of priority in the distribution of assets
during the dissolution of a limited
partnership
An action for the liquidation of a partnership is a
personal one; hence, it may be brought in the
place of residence of either the plaintiff or the
defendant. (De Leon, 2014)
In setting accounts after dissolution, the
liabilities of the partnership shall be entitled to
payment in the following order:
1.
2.
3.
4.
5.
6.
Judicially, under the control and direction of
the proper court upon cause shown by any
partner, his legal representative, or his
assignee; or
Extrajudicially, by the partners themselves
without intervention of the court. (De Leon,
2014)
Persons authorized to wind up
1.
2.
Those to creditors, in the order of priority
as provided by law, except those to limited
partners on account of their contributions,
and to general partners;
Those to limited partners in respect to their
share of the profits and other compensation
by way of income on their contributions;
Those to limited partners in respect to the
capital of their contributions;
Those to general partners other than for
capital and profits;
Those to general partners in respect to
profits;
Those to general partners in respect to
capital. (NCC, Art. 1863)
3.
Partners designated by the agreement;
In the absence of such, all partners who
have not wrongfully dissolved the
partnership; and
Legal representative of last surviving
partner who is not insolvent. (De Leon,
2014)
NOTE: The court may, in its discretion, after
considering all the facts and circumstances of
the particular case, appoint a receiver to wind
up the partnership affairs where such step is
shown to be to the best interests of all persons
concerned.
An insolvent partner does not have the right to
wind up partnership affairs. (De Leon, 2014)
NOTE: Subject to any statement in the
certificate or to subsequent agreement, limited
partners share in the
Powers of liquidating partner
1.
2.
3.
partnership assets in respect to their claims for
capital, and in respect to their claims for profits
or for compensation by way of income on their
contribution respectively, in proportion to the
respective amounts of such claims. (NCC, Art.
1863)
4.
Make new contracts;
Raise money to pay partnership debts;
Incur obligations to complete existing
contracts or preserve partnership assets;
and
Incur expenses necessary in the conduct of
litigation. (De Leon, 2014)
Order of payment in winding up
WINDING UP OF THE PARTNERSHIP
a.
It is during this time after dissolution that
577
In a general partnership:
Special Contracts - Partnership
1.
2.
3.
4.
Those owing to creditors other than
partners
Those owing to partners other than for
capital or profits
Those owing to partners in respect of
capital
Those owing to partners in respect to
profits. [NCC, Art. 1839(2)]
cash the net amount owing to the
respective partners. (De Leon, 2014)
Rights of a partner where dissolution is in
contravention of the agreement
The rights of a partner vary depending upon
whether he is the innocent or guilty partner.
b. In a limited partnership:
1.
2.
3.
4.
5.
6.
1.
Those to creditors, in the order of
priority as provided by law, except
those to limited partners on account of
their contributions, and to general
partners.
Those to limited partners in respect to
their share of the profits and other
compensation by way of income on
their contributions.
Those to limited partners in respect to
the capital of their contributions.
Those to general partners other than
for capital and profits.
Those to general partners in respect to
profits.
Those to general partners in respect to
capital. (NCC, Art. 1863)
Rights of partner who has not caused the
dissolution wrongfully:
a.
b.
c.
d.
2.
“Doctrine of marshalling of assets”
Rights of partner who has wrongfully
caused the dissolution:
a.
If the business is not continued by the
other partners, to have the partnership
property applied to discharge its
liabilities and to receive in cash his
share of the surplus less damages
caused by his wrongful dissolution
b.
If the business is continued:
The doctrine of marshalling of assets provides
that:
1.
2.
Partnership creditors have preference in
partnership assets.
Separate or individual creditors have
preference in separate or individual
properties.
Anything left from either goes to the other.
To have partnership property applied
for the payment of its liabilities and to
receive in cash his share of the surplus
To be indemnified for the damages
caused by the partner guilty of
wrongful dissolution
To continue the business in the same
name during the agreed term of the
partnership, by themselves or jointly
with others
To possess partnership property
should they decide to continue the
business
Rights of a partner where dissolution is not
in contravention of the agreement
i. To have the value of his interest in
the partnership at the time of the
dissolution, less any damage
caused by the dissolution to his copartners, ascertained and paid in
cash, or secured by bond approved
by the court; and
ii. To be released from all existing
and future liabilities of the
partnership. (De Leon, 2014)
Unless otherwise agreed, the rights of each
partner are as follows:
Rights of injured partner where partnership
contract is rescinded
1.
1.
3.
NOTE: The doctrine of marshalling of assets
involves the ranking of assets in a certain order
toward the payment of outstanding debts. (De
Leon, 2014)
2.
To have the partnership property applied
to discharge the liabilities of partnership;
and
To have the surplus, if any, applied, to pay in
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
578
Right of a lien on, or retention of, the surplus
of partnership property after satisfying
partnership liabilities for any sum of money
paid or contributed by him;
Civil Law
2.
3.
Right of subrogation in place of partnership
creditors after payment of partnership
liabilities; and
Right of indemnification by the guilty
partner against all debts and liabilities of
the partnership. (De Leon, 2014)
1962)
Since the capital was contributed to the
partnership, not to partners, it is the
partnership that must refund the equity of the
retiring partners. Since it is the partnership, as
a separate and distinct entity that must refund
the shares of the partners, the amount to be
refunded is necessarily limited to its total
resources. In other words, it can only pay out
what it has in its coffers, which consists of all its
assets. (Villareal v. Ramirez, G.R. No. 144214, July
14, 2003)
Settlement of accounts between partners
1.
Assets of the partnership include:
a.
b.
2.
Partnership property (including
goodwill)
Contributions of the partners
Partner’s lien
Order of application of the assets:
a.
b.
c.
d.
It is the right of every partner to have the
partnership property applied, to discharge
partnership liabilities and surplus assets, if any,
distributed in cash to the respective partners,
after deducting what may be due to the
partnership from them as partners.
First, those owing to partnership
creditors
Second, those owing to partners
other than for capital and profits
such as loans given by the partners
or advances for business expenses
Third, those owing for the return of
the capital contributed by the
partners
Fourth, the share of the profits, if
any, due to each partner. (De Leon,
2014)
Effects when the business of a dissolved
partnership is continued
Q: A partnership was formed with Magdusa
as the manager. During the existence of the
partnership, two partners expressed their
desire to withdraw from the firm. Magdusa
determined the value of the partners share
which were embodied in the document
drawn in the handwriting of Magdusa but
was not signed by all of the partners. Later,
the withdrawing partners demanded for
payment but were refused. Considering that
not all partners intervened in the
distribution of all or part of the partnership
assets, should the action prosper?
1.
Creditors of old partnership are also
creditors of the new partnership who
continues the business of the old one
without liquidation of the partnership
affairs.
2.
Creditors have an equitable lien on the
consideration paid to the retiring/deceased
partner
by
the
purchaser
when
retiring/deceased partner sold his interest
without final settlement with creditors.
3.
Rights of
partner:
a.
A: NO. A partner’s share cannot be returned
without first dissolving and liquidating the
partnership, for the return is dependent on the
discharge of creditors, whose claims enjoy
preference over those of the partner, and it is
self- evident that all members of the partnership
are interested in its assets and business, and are
entitled to be heard in the matter of the firm’s
liquidation and distribution of its property. The
liquidation prepared by Magdusa not signed by
the other partners is not binding on them.
(Magdusa v. Albaran, G.R. No. L-17526, June 30,
b.
retiring/estate
of
deceased
To have the value of his interest
ascertained as of the date of
dissolution; and
To receive as ordinary creditor the
value of his share in the dissolved
partnership with interest or profits
attributable to use of his right, at
his option.
NOTE: The right to demand on accounting of
the value of his interest accrues to any partner
or his legal representative after dissolution in
the absence of an agreement to the contrary.
Continuation
579
of
partnership
by
a
Special Contracts - Partnership
corporation
Characteristics of limited partnership
If a corporation is formed consisted of the
members of the partnership, whose business
and properties are transferred to the
corporation for continuing its business, in
payment of which corporate capital stock was
issued, such corporation is presumed to have
assumed the partnership debts and is prima
facie liable therefor. The rationale of the rule is
that members of the partnership may be said to
have simply put on new coat or taken a
corporate cloak and the corporation is a mere
continuation of the partnership. (Laguna
Transportation Co., Inc. v. SSS, G.R. No. L-14606,
April 28, 1960)
1.
2.
3.
4.
5.
Persons that are required to render an
account
1.
2.
3.
Consequences of separate personality of
limited partnership
Winding up partner;
Surviving partner; and
Person or partnership continuing the
business.
The personality of a limited partnership being
different from that of its members, it must, on
general principle, answer for, and suffer, the
consequence of its acts as such an entity capable
of being the subject of rights and obligations. If
the limited partnership failed to pay its
obligations, this partnership must suffer the
consequences of such a failure, and must be
adjudged insolvent. (Saludo Jr. v. PNB, G.R. No.
193138, August 20, 2018)
Q: Emnace and Tabanao decided to dissolve
their partnership in 1986. Emnace failed to
submit the statement of assets and liabilities
of the partnership, and to render an
accounting of the partnership's finances.
Tabanao’s heirs filed against Emnace an
action for accounting, etc. Emnace counters,
contending that prescription has set in.
Decide.
FORMATION AND AMENDMENT OF LIMITED
PARTNERSHIP
A: Prescription has not yet set in. Prescription
of the said right starts to run only upon the
dissolution of the partnership when the final
accounting is done. Contrary to Emnace’s
protestations, prescription had not even begun
to run in the absence of a final accounting. The
right to demand an accounting accrues at the
date of dissolution in the absence of any
agreement to the contrary. When a final
accounting is made, it is only then that
prescription begins to run. (Emnace v. CA, G.R.
No. 126334, November 23, 2001)
Essential requirements for the formation of
limited partnership
1.
Certificate or articles of limited partnership
which states the matters enumerated in
Art. 1844, must be signed and sworn; and
NOTE: Among the contents of the
Certificate of Articles of Partnership should
be the name of the partnership, adding
thereto the word “limited.”
LIMITED PARTNERSHIP
2.
It is one formed by two or more persons having
as members one or more general partners and
one or more limited partners, the latter not
being personally liable for partnership debts.
(NCC, Art. 1843)
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
It is formed by compliance with the
statutory requirements.
One or more general partners control the
business and are personally liable to
creditors.
One or more limited partners contribute to
the capital and share in the profits but do
not participate in the management of the
business and are not personally liable for
partnership obligations beyond their
capital contributions.
The limited partners may ask for the return
of their capital contributions under
conditions prescribed by law.
Partnership debts are paid out of common
fund and the individual properties of
general partners. (De Leon, 2014)
Certificate must be filed for record in the
office of the SEC. (De Leon, 2014)
NOTE:
Strict
compliance
with
legal
requirements is not necessary. It is sufficient
that there is substantial compliance in good
faith. If there is no substantial compliance, the
580
Civil Law
partnership becomes general partnership as far
as third persons are concerned, in which the
member are liable as general partners
Instances when a general partner needs
consent or ratification of all the limited
partners
Cancellation of certificate or articles of
limited partnership
When he:
1.
2.
1.
When the partnership is dissolved
When all the limited partners ceased to be
such. (NCC, Art. 1864)
2.
3.
4.
Instances when a certificate or articles of
limited partnership can be amended
1.
It must fall under the following changes and
conditions:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
2.
3.
5.
6.
There is a change in the name of the
partnership or in the amount or
character of the contribution of any
limited partner;
A person is substituted as a limited
partner;
An additional limited partner is
admitted;
A person is admitted as a general
partner;
A general partner retires, dies,
becomes insolvent or insane, or is
sentenced to civil interdiction and the
business is continued under Article
1860;
There is a change in the character of
the business of the partnership;
There is a false or erroneous statement
in the certificate;
There is a change in the time as stated
in the certificate for the dissolution of
the partnership or for the return of a
contribution;
A time is fixed for the dissolution of the
partnership, or the return of a
contribution, no time having been
specified in the certificate;
The members desire to make a change
in any other statement in the certificate
in order that it shall accurately
represent the agreement among them.
(NCC, Art. 1864)
7.
Does any act in contravention of the
certificate;
Does any act which would make it
impossible to carry on the ordinary
business of the partnership;
Confesses judgment against partnership;
Possesses partnership property/ assigns
rights in specific partnership property
other than for partnership purpose;
Admits person as general partner;
Admits person as limited partner – unless
authorized in certificate; or
Continues business with partnership
property on death, retirement, civil
interdiction, insanity or insolvency of
general partner unless authorized in the
certificate. (NCC, Art. 1850)
Effective date of amendment or cancellation
As a general rule, a certificate is deemed
amended or cancelled when the amended
certificate or the certified copy of the court
order in case of judicial cancellation or
amendment is filed for record in the SEC.
LIMITED PARTNER
Contribution of a limited partner
The contribution of a limited partner may be
cash or other property, but not services. (NCC,
Art. 1845)
Otherwise, he shall be considered an industrial
and general partner, in which case, he shall not
be exempted from personal liability. (De Leon,
2014)
NOTE: A partner may be a general partner and
a limited partner in the same partnership at the
same time, provided that it shall be stated in the
certificate provided for in Article 1844. (NCC,
Art. 1854)
Must be signed and sworn to by all of the
members including the new members if
some added; in case of substitution, the
assigning limited partner must also sign.
Time contribution shall be made
The contribution of each limited partner must
be paid before the formation of the limited
partnership, although with respect to the
Must be recorded in the SEC.
581
Special Contracts - Partnership
additional contributions, they may be paid after
the limited partnership has been formed.
liabilities. (De Leon, 2014)
Transactions allowed or prohibited in a
limited partnership
Firm name
GR: The surname of a limited partnership shall
not appear in the partnership name.
1. Allowed
XPNs:
a.
b.
1.
c.
2.
Limited partner and general partner have
similar surnames; or
Prior to the time when the limited partner
became such, the business had been carried
on under a name in which his surname
appeared. (NCC, Art. 1846)
Granting loans to partnership
Transacting
business
with
partnership
Receiving pro rata share of
partnership assets with general
creditors if he is not also a general
partner
2. Prohibited
NOTE: A limited partner whose surname
appears in a partnership name is liable as a
general partner to partnership creditors who
extend credit to the partnership without actual
knowledge that he is not a general partner
a.
b.
Admission of additional limited partners
Receiving/holding
partnership
property as collateral security
Receiving
any
payment,
conveyance, release from liability if
it will prejudice right of 3rd persons
After a limited partnership had been formed,
additional limited partners may be admitted,
provided:
NOTE: The prohibition is not absolute because
there is no prohibition if the partnership assets
are sufficient to discharge partnership liabilities
to persons not claiming as general or limited
partners.
1.
Substituted limited partner
2.
There is proper amendment to the
certificate which must be signed and sworn
to by all of the partners, including the new
limited partners; and
It is filed with the Securities and Exchange
Commission.
It is a person admitted to all the rights of a
limited partner who has died or assigned his
interest in the partnership.
Rights and liabilities of a substituted limited
partner (NCC, Art. 1859)
RIGHTS AND OBLIGATIONS OF A LIMITED
PARTNER
GR: He has all the rights and powers and is
subject to all the restrictions and liabilities of
his assignor.
Rights of a limited partner (NCC, Art. 1851)
1.
2.
3.
4.
5.
6.
7.
To require partnership books kept at
principal place of business;
To inspect or copy books at reasonable
hours;
To demand true and full information of all
things affecting partnership;
To demand formal account of partnership
affairs whenever circumstances render it
just and reasonable;
To ask for dissolution and winding up by
decree of court;
To receive share of profits or other
compensation by way of income; and
To receive return of contributions provided
the partnership assets are in excess of all its
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
XPN: Those liabilities which he was ignorant of
at the time that he became a limited partner and
which could not be ascertained from the
certificate
Requirements for the admission of a
substituted limited partner
1.
582
All the members must consent to the
assignee becoming a substituted limited
partner or the limited partner, being
empowered by the certificate must give the
assignee the right to become a limited
partner;
Civil Law
2.
The certificate must be amended in
accordance with Art. 1865 of the NCC; and
The certificate as amended must be registered
in the SEC.
NOTE: Even if a limited partner has contributed
property, he has only the right to demand and
receive cash for his contribution. The exceptions
are:
Basis of preference given to limited partners
over other limited partners
1.
2.
Priority or preference may be given to some
limited partners over other limited partners as
to the:
1.
2.
3.
Liabilities of a limited partner
Return of their contributions;
Their compensation by way of income; or
Any other matter.
1. To the partnership
NOTE: In the absence of such statement in the
certificate, even if there is an agreement, all
limited partners shall stand on equal footing in
respect of these matters.
Since limited partners are not principals in
the transaction of a partnership, their
liability as a rule, is to the partnership, not
to the creditors of the partnership. The
general partners cannot however waive any
liability of the limited partners to the
prejudice of such creditors.
Requisites for return of contribution of a
limited partner (NCC, Art. 1857)
1.
2.
3.
2. To the partnership creditors and other
partners
All liabilities of the partnership have been
paid or if they have not yet been paid, the
assets of the partnership are sufficient to
pay such liabilities;
The consent of all the members (general
and limited partners) has been obtained
except when the return may be rightfully
demanded; and
The certificate of limited partnership is
cancelled or amended.
a.
b.
c.
When return of contribution is a matter of
right
d.
e.
When all liabilities of the partnership, except
liabilities to general partners and to limited
partners on account of their contributions, have
been paid or there remains property of the
partnership sufficient to pay them and the
certificate is cancelled or so amended as to set
forth the withdrawal or reduction:
1.
2.
3.
When there is stipulation to the
contrary in the certificate; or
When all the partners (general and
limited partners) consent to the return
other than in the form of cash. (De Leon
2014)
f.
On the dissolution of the partnership;
Upon the arrival of the date specified in
the certificate for the return; or
After the expiration of six (6)-month
notice in writing given by him to the
other partners if no time is fixed in the
certificate for the return of the
contribution or for the dissolution of
the partnership.
A limited partner is liable for
partnership obligations when he
contributed services instead of only
money or property to the partnership;
When he allows his surname to appear
in the firm name;
When he fails to have a false statement
in the certificate corrected, knowing it
to be false;
When he takes part in the control of the
business;
When he receives partnership property
as collateral security, payment,
conveyance, or release in fraud of
partnership creditors;
When there is failure to substantially
comply with the legal requirements
governing the formation of limited
partnerships.
3. To separate creditors
As in a general partnership, the creditor of a
limited partner may, in addition to other
remedies allowed under existing laws, apply to
the proper court for a charging order subjecting
the interest in the partnership of the debtor
partner for the payment of his obligation. (De
Leon, 2014)
583
Special Contracts - Partnership
Requisites for waiver or compromise of
liabilities
2.
The waiver or compromise shall:
1.
2.
3.
Be made with the consent of all partners;
and
Not prejudice partnership creditors who
extended credit or whose claims arose
before the cancellation or amendment of
the certificate.
4.
5.
6.
When may a limited partner have the
partnership dissolved
1.
When his demand for the return of his
contribution is denied although he has a
right to such return; or
2.
When his contribution is not paid although
he is entitled to its return because the other
liabilities of the partnership have not been
paid or the partnership property is
insufficient for their payment.
NOTE: Subject to any statement in the
certificate or to subsequent agreement, limited
partners share in the partnership assets in
respect to their claims for capital, and in respect
to their claims for profits or for compensation
by way of income on their contribution
respectively, in proportion to the respective
amounts of such claims.
GR: A limited partner is not a proper party to
proceedings:
Effect of retirement, death, civil interdiction,
insanity or insolvency of a partner
1.
b.
2.
1.
2.
General partner – The partnership is
dissolved (NCC, Art. 1860) unless the
business is continued by the remaining
general partners:
a.
2.
1.
2.
Under the right stated in the
certificate; or
With the consent of all the partners.
1.
All the rights of a limited partner for the
purpose of settling his estate
To have the same power as the deceased
had to constitute his assignee as
substituted limited partner.
Those to creditors, in the order of priority
as provided by law, except those to limited
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
If he is also a general partner.
Where the object is to enforce a limited
partner’s right against or liability to the
partnership. (NCC, Art. 1866)
SUMMARY OF RIGHTS AND OBLIGATIONS OF
PARTNERS
Limited partner – The partnership is not
dissolved except all limited partners cease
to be such.
In setting accounts after dissolution, the
liabilities of the partnership shall be entitled
to payment in the following order
1.
By a partnership; or
Against a partnership.
XPNs:
Rights of the executor/administrator on the
death of the limited partner
1.
partners on account of their contributions,
and to general partners
Those to limited partners in respect to their
share of the profits and other compensation
by way of income on their contributions
Those to limited partners in respect to the
capital of their contributions
Those to general partners other than for
capital and profits
Those to general partners in respect to
profits
Those to general partners in respect to
capital. (NCC, Art. 1863)
584
GENERAL PARTNER
Rights
Right in specific partnership property.
2.
Interest in the partnership (share in the
profits and surplus).
3.
Right to participate in the management.
4.
Right to associate another person with him
in his share without the consent of other
partners (sub- partnership).
5.
Right to inspect and copy partnership
books at any reasonable hour.
Civil Law
6.
Right to a formal account as to partnership
affairs (even during existence of
partnership):
a.
b.
a.
b.
c.
d.
If he is wrongfully excluded from
partnership
business
or
possession of its property by his
co-partners.
If right exists under the terms of
any agreement.
As provided in Art. 1807 of the
NCC.
Whenever
the
circumstances
render it just and reasonable.
Obligations
c.
5.
Partners and the partnership are solidarily
liable to 3rd persons for the partner's tort or
breach of trust.
6.
Liability of incoming partner is limited to:
Obligations of partners among themselves
1.
2.
3.
4.
5.
6.
7.
8.
9.
a.
Contribution of property.
Contribution of money and money
converted to personal use.
Prohibition in engaging in business for
himself.
Contribute additional capital.
Managing partner who collects debt.
Partner who receives share of partnership
credit.
Damages to partnership.
Render information.
Accountable as fiduciary.
b.
7.
2.
Every partnership shall operate under a
firm name. Persons who include their
names in the partnership name even if they
are not members shall be liable as a
partner.
Pro rata
Subsidiary
3.
Admission or representation made by any
partner concerning partnership affairs
within the scope of his authority is
evidence against the partnership.
4.
Notice to partner of any matter relating to
partnership affairs operates as notice to
partnership except in case of fraud:
Creditors of partnership are preferred in
partnership property & may attach
partner's share in partnership assets.
1.
Duty to render on demand true and full
information affecting partnership to any
partner or legal representative of any
deceased partner or of any partner under
legal disability.
2.
Duty to account to the partnership as
fiduciary.
LIMITED PARTNER
Rights
All partners shall be liable for contractual
obligations of the partnership with their
property, after all partnership assets have
been exhausted:
a.
b.
His share in the partnership
property for existing obligations.
His
separate
property
for
subsequent obligations.
Other obligations
Obligations of partners to 3rd persons
1.
Knowledge of partner acting in the
particular matter acquired while a
partner.
Knowledge of the partner acting in
the particular matter then present
to his mind.
Knowledge of any other partner
who reasonably could and should
have communicated it to the acting
partner.
585
1.
To have partnership books kept at principal
place of business.
2.
To inspect/copy books at reasonable hours.
3.
To have on demand true
information of all things
partnership.
4.
To have formal account of partnership
affairs whenever circumstances render it
just and reasonable.
5.
To ask for dissolution and winding up by
and full
affecting
Special Contracts - Partnership
decree of court.
6.
To receive share of profits/other
compensation by way of income.
7.
To receive return of contributions,
provided the partnership assets are in
excess of all its liabilities.
subjecting the interest in the partnership of the
debtor partner for the payment of his
obligation.
Obligations
To the partnership
Since limited partners are not principals in the
transaction of a partnership, their liability as a
rule, is to the partnership, not to the creditors
of the partnership. The general partners
cannot, however waive any liability of the
limited partners to the prejudice of such
creditors.
To the partnership creditors and other
partners
1.
A limited partner is liable for partnership
obligations when he contributed services
instead of only money or property to the
partnership.
2.
When he allows his surname to appear in
the firm name.
3.
When he fails to have a false statement in
the certificate corrected, knowing it to be
false.
4.
When he takes part in the control of the
business
5.
When he receives partnership property as
collateral security, payment, conveyance,
or release in fraud of partnership creditors.
6.
When there is failure to substantially
comply with the legal requirements
governing the formation of limited
partnerships.
To separate creditors
As in a general partnership, the creditor of a
limited partner may, in addition to other
remedies allowed under existing laws, apply to
the proper court for a charging order
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
586
Civil Law
latter. Neither the principal nor the agent can
be legally made to remain in the relationship
when they choose to have it terminated.
AGENCY
DEFINITION OF AGENCY
Classifications of Agency
Contract of agency (2000, 2003 BAR)
1.
By the contract of agency, a person binds himself
to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter. (NCC, Art. 1868)
NOTE: The essence of agency is representation.
For a Contract of Agency to exist, it is essential that
the principal consents that the agent shall act on
the former’s behalf and the agent consents so as
to act. (Rabuya, 2017)
One factor which most clearly distinguishes
agency from other legal concepts is control; one
person – the agent – agrees to act under the
control or direction of another – the principal.
Indeed, the very word “agency” has come to
connote control by the principal. (Victorias
Milling Co., Inc. v. Court of Appeals, G.R. No.
117356, June 19, 2000)
2.
As to manner of creation
a.
Express – Agent has been actually
authorized by the principal, either
orally or in writing. (NCC, Art. 1869)
b.
Implied – Agency is implied from the
acts of the principal, from his silence
or lack of action, or his failure to
repudiate the agency, knowing that
another person is acting on his
behalf without authority. (NCC, Art.
1869), or from the acts of the agent
which carry out the agency, or from
his silence or inaction according to
the circumstances. (NCC, Art. 1870)
As to character
a.
Gratuitous – Agent receives no
compensation for his services. (NCC,
Art. 1875)
b.
Onerous or Compensated – Agent
receives compensation for his
services. (NCC, Art. 1875)
NATURE, FORMS AND KINDS OF AGENCY
Characteristics of a contract of agency
1.
2.
3.
4.
5.
6.
7.
8.
9.
Bilateral – If it is for compensation, it gives
rise to reciprocal rights and obligations.
Unilateral – If gratuitous, it creates
obligations for only one of the parties.
Nominate – It has its own name.
Consensual – It is perfected by mere consent.
Principal – It can stand by itself without
need of another contract.
Preparatory and Progressive – It is entered
into as a means for other purposes that deal
with the public in a particular manner: for
the agent to enter into juridical acts with the
public in the name of the principal.
(Villanueva and Villanueva-Tiansay, 2015)
Generally onerous
Representative relation – The agent acts for
and on behalf of the principal on matters
within the scope of his authority and said
acts have the same legal effect as if they were
personally executed by the principal.
(Rabuya, 2017)
Fiduciary and Revocable – For the creation
of legal relationship of representation by the
agent on behalf of the principal, the powers
of the former are essentially derived from the
3.
4.
5.
587
As to extent of business of the principal
a.
General – Agency comprises all the
business of the principal. (NCC, Art.
1876)
b.
Special – Agency comprises one or
more specific transactions. (NCC, Art.
1876)
As to authority conferred
a.
Couched in general terms – Agency is
created in general terms and is
deemed to comprise only acts of
administration. (NCC, Art. 1877)
b.
Couched in specific terms – Agency
authorizing only the performance of
a specific act or acts. (NCC, Art. 1876)
As to nature and effects
Special Contracts - Agency
a.
Ostensible or Representative – Agent
acts in the name and representation
of the principal. (NCC, Art. 1868)
b.
Simple or Commission – Agent acts in
his own name but for the account of
the principal. (De Leon, 2014)
Aurora, Inc., G.R. No. 174978, July 21, 2013) (2010
BAR)
Rules on implied acceptance of agency
1.
Between persons who are present – The
acceptance of the agency may also be implied
if the principal delivers his power of attorney
to the agent and the latter receives it without
any objection. (NCC, Art. 1871)
2.
Between persons who are absent – The
acceptance of the agency cannot be implied
from the silence of the agent except:
Parties to a contract of agency
1.
Principal (Mandante) – One whom the agent
represents and from whom he derives his
authority; he is the person represented.
2. Agent (Mandatario) – One who acts for and
represents another; he is the person acting in
a representative capacity. The agent has
derivative authority in carrying out the
principal’s business. (De Leon, 2014)
a.
b.
Essential elements of an agency
1.
Consent (express or implied) of the parties to
establish the relationship.
NOTE: Acceptance by the agent may also be
express or implied from his acts which carry out
the agency, or from his silence or inaction
according to the circumstances. (NCC, Art. 1870)
NOTE: A person may express his consent:
a.
b.
c.
d.
by contract (NCC, Art. 1868), orally
or in writing;
by conduct (NCC, Art. 1869);
by ratification (NCC, Art. 1910); or
the
consent
may
arise
by
presumption or operation of law. (De
Leon, 2014)
2.
The object is the execution of a juridical act in
relation to third persons.;
3.
The agent acts as a representative and not for
himself.; and
4.
The agent acts within the scope of his
authority. (International Exchange Bank v.
Spouses Briones, et al., G.R. No. 205657, March
29, 2017, as penned by J. Leonen)
Communication of existence of agency
Ways of giving notice of agency:
1.
By special information – The person
appointed as agent is considered such with
respect to the person to whom it was given.
2.
By public advertisement – The agent is
considered as such with regard to any
person.
Nature of the relationship between principal
and agent
It is fiduciary in nature that is based on trust and
confidence. The agent is estopped from asserting
or acquiring an interest adverse to that of his
principal. (De Leon, 2014)
Appointment of an agent
GR: There are no formal requirements governing
the appointment of an agent.
Qualifications of a Principal
XPN: When the law requires a specific form, i.e.
when sale of land or any interest therein is
through an agent, the authority of the latter must
be in writing; otherwise, the sale shall be void.
(NCC, Art. 1874; Yoshizaki v. Joy Training Center of
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
When the principal transmits his
power of attorney to the agent, who
receives it without any objection;
When the principal entrusts to him
by letter or telegram a power of
attorney with respect to the business
in which he is habitually engaged as
an agent and he did not reply to the
letter or telegram. (NCC, Art. 1872)
1.
2.
Natural or juridical person; and
Must have capacity to act.
NOTE: If a person is capacitated to act for himself
588
Civil Law
or his own right, he can act through an agent.
principal. (De Leon, 2014)
Insofar as third persons are concerned, it is
enough that the principal is capacitated. But
insofar as his obligations to his principal are
concerned, the agent must be able to bind
himself.
NOTE: The theory of imputed knowledge
ascribes the knowledge of the agent to the
principal, not the other way around. The
knowledge of the principal cannot be imputed to
his agent. (Sunace International Management
Services, Inc. v. NLRC, G.R. No. 161757, January 25,
2006)
Kinds of principal
1.
2.
3.
Kinds of agents
Disclosed principal – At the time of the
transaction contracted by the agent, the
other party knows that the agent is acting for
a principal and of the principal’s identity.
Partially disclosed principal – The other party
knows or has reason to know that the agent
is or may be acting for a principal but is
unaware of the principal’s identity.
Undisclosed principal – The party has no
notice of the fact that the agent is acting as
such for a principal. (De Leon, 2014)
1.
2.
3.
Joint principals
Two or more persons appoint an agent for a
common transaction or undertaking. (NCC, Art.
1915)
Rule with regard to the execution of the
agency
Requisites for solidary liability of joint
principals
1.
2.
3.
GR: The agent is bound by his acceptance to carry
out the agency, in accordance with the instruction
of the principal and is liable for damages which,
through his non-performance, the principal may
suffer. (NCC, Arts. 1884 and 1887)
There are two or more principals;
They have all concurred in the appointment
of the same agent; and
Agent is appointed for a common transaction
or undertaking. (De Leon, 2014)
XPN: If its execution could manifestly result in
loss or damage to the principal. (NCC, Art. 1888)
Theory of imputed knowledge
Responsibility of two or
appointed simultaneously
The importance of the duty to give information of
material facts becomes readily apparent when it
is borne in mind that knowledge of the agent is
imputed to the principal even though the agent
never communicated such knowledge to the
principal. (De Leon, 2010)
Exceptions
knowledge
1.
2.
3.
to
the
theory
of
Universal agent – employed to do all acts
which the principal may personally do, and
which he can lawfully delegate to another the
power of doing.
General agent – employed to transact all
business of the principal, or all the business
of a particular kind or in a particular place, or
in other words, to do all acts connected with
a particular trade, business or employment.
Special or particular agent – authorized to act
in one or more specific transactions, or to do
one or more specific acts, or to act upon a
particular occasion. (De Leon, 2014)
more
agents
GR: They are jointly liable.
XPN: Solidarity has been expressly stipulated.
Each of the agents becomes solidarily liable for:
imputed
1.
2.
The agent’s interests are adverse to those of
the principal;
The agent’s duty is not to disclose the
information, as where he is informed by way
of confidential information; and
The person claiming the benefit of the rule
colludes with the agent to defraud the
The non-fulfillment of the agency
Fault or negligence of his fellow agent
XPNs to the XPN:
1.
2.
589
When one of the other agents acts beyond the
scope of his authority – innocent agent is not
liable.
When the fault or negligence of his fellow
agents was done beyond the scope of their
Special Contracts - Agency
authority – innocent agent is not liable. (NCC,
Art. 1895)
of the claim against the insurance company?
A: YES. All the elements of agency exist in this
case, namely (1) there is consent, express or
implied, of the parties to establish the
relationship of agency; (2) the object is the
execution of a juridical act in relation to a third
person; (3) the agent acts as a representative
and not for himself; and (4) the agent acts within
the scope of his authority.
Instances when the agent may incur personal
liability
1.
2.
3.
4.
5.
Agent expressly bound himself;
Agent exceeded his authority;
Acts of the agent prevented the performance
on the part of the principal;
When a person acted as agent without
authority or without a principal; and
When a person acted as an agent of an
incapacitated principal unless the third
person was aware of the incapacity at the
time of the making of the contract. (De Leon,
2010)
Under the promissory note with chattel
mortgage, Spouses Briones appointed iBank as
their attorney-in-fact, authorizing it to file a
claim with the insurance company if the
mortgaged vehicle was lost or damaged. iBank
was also authorized to collect the insurance
proceeds as the beneficiary of the insurance
policy. Article 1370 of the Civil Code is
categorical that when “the terms of a contract
are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of
its stipulations shall control. (International
Exchange Bank Now Union Bank of the
Philippines v. Spouses Jerome and Quinnie
Briones, and John Doe, G.R. No. 205657, March 29,
2017, as penned by J. Leonen)
Q: Spouses Briones took out a loan of
₱3,789,216.00 from iBank to purchase a
BMW Z4 Roadster. The monthly amortization
for two (2) years was ₱78,942.00. They
executed a promissory note with chattel
mortgage that required them to take out an
insurance policy on the vehicle. In the
promissory note, the Spouses Briones
constituted iBank as their attorney-in-fact
with full power and authority for the purpose
of filing claims with the insurance company
as may be necessary to prove the claim and
to collect from the latter the proceeds of
insurance in case of loss or damage to the
vehicle. The mortgaged BMW Z4 Roadster
was carnapped in Tandang Sora, Quezon City.
Spouses Briones declared the loss to iBank,
which instructed them to continue paying the
next three (3) monthly installments “as a
sign of good faith.” When the Spouses Briones
finished paying the three (3)-month
installment, iBank sent them a letter
demanding full payment of the lost vehicle.
The Spouses Briones submitted a notice of
claim with their insurance company, but the
latter denied the claim due to the delayed
reporting of the lost vehicle.
Presumption of contract of agency
GR: Agency is not presumed.
The relation between principal and agent must
exist as a fact. Thus, it is held that where the
relation of agency is dependent upon the acts of
the parties, the law makes no presumption of
agency, and it is always a fact to be proved, with
the burden of proof resting upon the person
alleging the agency to show, not only the fact of
its existence, but also its nature and extent.
(Victorias Milling Co., Inc. v. Consolidated Sugar
Corporation, G.R. No. 117356, June 19, 2000)
XPNs:
1.
2.
Thereafter, iBank filed a complaint for the
default of the Spouses to pay monthly
amortizations. RTC ruled that as the duly
constituted attorney-in-fact of the Spouses
Briones, iBank had the obligation to facilitate
the filing of the notice of claim and then to
pursue the release of the insurance proceeds.
The CA also dismissed the complaint. Did an
agency relationship exist between the parties
which obligated iBank to facilitate the filing
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Operation of law; and
To prevent unjust enrichment. (De Leon,
2010)
Agency by necessity
Agency cannot be created by necessity. What is
created instead is additional authority in an agent
appointed and authorized before the emergency
arose. By virtue of the existence of an emergency,
the authority of an agent is correspondingly
590
Civil Law
enlarged in order to cope with the exigencies or
the necessities of the moment. (De Leon, 2010)
Mere representation of an alleged agent is not
sufficient to prove the existence of a principalagent relationship. The declarations of the agent
alone are generally insufficient to establish the
fact or extent of agency. It is a settled rule that the
persons dealing with the assumed agent are
bound at their peril, if they would hold the
principals liable, to ascertain not only the fact of
agency but also the nature and extent of
authority, and in case either is controverted, the
burden of proof is upon them to establish it. (Sps.
Yu v. Pan American World Airways, Inc., G.R. No.
123560, March 27, 2000)
Requisites for the additional authority of
agent in cases of necessity
1.
2.
3.
4.
Real existence of emergency;
Inability of the agent to communicate with
the principal;
Exercise of additional authority is for the
principal’s protection; and
Adoption of fairly reasonable means,
premises duly considered.
Q: A foreign manufacturer of computers and a
Philippine distributor entered into a contract
whereby the distributor agreed to order
1,000 units of the manufacturer's computers
every month and to resell them in the
Philippines at the manufacturer's suggested
prices plus 10%. All unsold units at the end of
the year shall be bought back by the
manufacturer at the same price they were
ordered. The manufacturer shall hold the
distributor free and harmless from any claim
for defects in the units. Is the agreement one
for sale or agency? (2000 BAR)
Rule regarding double agency
GR: Disapproved by law for being against public
policy and sound morality.
XPN: Where the agent acted with full knowledge
and consent of the principals.
Acts that a principal may delegate to his agent
GR: What a man may do in person, he may do
thru another.
XPNs:
1.
2.
A: The contract is one of agency not sale. The
notion of sale is negated by the following indicia:
(1) the price is fixed by the manufacturer with
the 10% mark-up constituting the commission;
(2) the manufacturer reacquires the unsold units
at exactly the same price; and (3) warranty for the
units was borne by the manufacturer. The
foregoing indicia negate sale because they
indicate that ownership over the units was never
intended to transfer to the distributor.
Personal acts; and
Criminal acts or acts not allowed by law.
(De Leon, 2014)
Q: A granted B the exclusive right to sell his
brand of Maong pants in Isabela, the price for
his merchandise payable within 60 days from
delivery, and promising B a commission of
20% on all sales. After the delivery of the
merchandise to B but before he could sell any
of them, B’s store in Isabela was completely
burned without his fault, together with all of
A's pants. Must B pay A for the lost pants?
Why? (1999 BAR)
Agency vs. Guardianship
BASIS
As to who
they
represent
A: YES. B must pay A for the lost pants. The contract
between A and B is a sale not an agency to sell
because the price is payable by B upon 60 days
from delivery even if B is unable to resell it. If B
were an agent, he is not bound to pay the price if
he is unable to resell it. As a buyer, however,
ownership passed to B upon delivery and, under
Art. 1504, the thing perishes for the owner.
Hence, B must still pay the price.
As to the
source of
authority
Proving the existence of principal-agent
relationship through mere representation
591
AGENCY
Agent
represents a
capacitated
person.
Agent derives
authority
from
the
principal and
his authority
may at any
time
be
abrogated or
modified by
the principal.
GUARDIANSHIP
Guardian
represents an
incapacitated
person.
Guardian
derives
authority from
the court.
Special Contracts - Agency
As to the
appointin
g
authority
Agent
is
appointed by
the principal
and can be
removed by
the latter.
As to being
subject to
the
person
they
represent
Agent
is
subject
to
directions of
the principal.
As to
liability
Agent
can
make
the
principal
personally
liable.
representation
by the agent
or worker
Guardian
is
appointed
by
the court, and
stands in loco
parentis.
Guardian is not
subject to the
directions of the
ward, but must
act
for
the
ward’s benefit.
Guardian has no
power
to
impose personal
liability on the
ward.
Agency vs. Judicial Administration
BASIS
As to the
source of
authority
As to
whom they
represent
As to the
requireme
nt of bond
As to
control of
the
Agent/Ad
ministrato
r
AGENCY
JUDICIAL
ADMINISTRA
TION
Agent
is
appointed by
the principal
Judicial
administrator
is appointed
by the court
Represents
the principal
Agent does
not file a
bond.
Agent
is
controlled by
the principal
through the
agreement.
As to
AGENCY
Agent
As to
termination of
relationship
Relationship
can
be
terminated
at the will of
either
principal or
agent.
Generally,
relationship
can
be
terminated
only at the
will of both.
As to the kind
of function he
exercises
Agent
exercises
discretionary
powers.
The lessor
ordinarily
performs
only
ministerial
functions.
BASIS
As to his
actions
Represents
not only the
court but also
the heirs and
creditors
of
the estate.
Judicial
Administrator,
before
entering into
his duties, is
required to file
a bond
AGENCY
Agent acts in
the name of
the principal.
An
agent
must submit
As to the
to
the
control by
principal’s
the principal
right
to
control.
The ordinary
agent
assumes no
personal
As to liability liability
where he acts
within
the
scope of his
authority.
The alleged
owner
or
As to sharing partner takes
of profits
his
agreed
share
of
profits, not as
The acts of an
administrator
are subject to
specific
provisions of
law
and
orders from
the court.
LEASE OF
SERVICES
Worker or
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
lessor
of
services
does
not
represent
his
employer.
Agency vs. Partnership
Agency vs. Lease of Services
BASIS
represents
the principal.
592
PARTNERSHIP
A partner acts
not only for his
co-partners and
the partnership
but
also
as
principal
of
himself.
A
partner’s
power to bind
his co-partner is
not subject to
the co-partner’s
right to control,
unless there is
an agreement to
that effect.
A partner acting
as agent for the
partnership
binds not only
the
firm
members
but
himself as well.
The
profits
belong to all the
parties
as
common
proprietors in
agreed
Civil Law
owner but as
an
agreed
measure
of
compensation
for
his
services
or
the like.
2.
proportions.
Scope of authority of an agent
The agent must act within the scope of his
authority. He may do such acts as may be
conducive to the accomplishment of the purpose
of the agency. (NCC, Art 1881)
Agency vs. Trust
BASIS
As to the
capacity to
hold title over
the property
AGENCY
Agent
usually
holds no
title at all.
Agent
usually
As to his
acts in the
actions
name
of
the
principal.
Agency
As to the
usually
termination
may
be
of the
terminated
relationship
or revoked
any time.
Agency
As to the
may not be
scope of
connected
authority
at all with
over property
property.
Agent has
As to the
authority
binding effect to
make
of the
contracts
contracts
which will
entered by
be binding
them
on
his
principal.
As to its
creation
Agency is
really
a
contractual
relation.
Specific terms – It is necessary to perform any
act of strict ownership. (De Leon, 2014)
However, the limits of the agent’s authority shall
not be considered exceeded should it have been
performed in a manner more advantageous to the
principal than that specified by him. (NCC, Art.
1882)
TRUST
Trustee
may
hold legal title
to the property.
Instances when the act of an agent is binding
to the principal
Trustee may act
in
his
own
name.
1.
Trust
usually
ends by the
accomplishment
of the purposes
for which it was
formed.
2.
3.
4.
Trust involves
control
over
property.
5.
When the agent acts as such without
expressly binding himself or does not exceed
the limits of his authority. (NCC, Art. 1897)
If principal ratifies the act of the agent which
exceeded his authority. (NCC, Art. 1898)
Circumstances where the principal himself
was, or ought to have been aware. (NCC, Art.
1899)
If such act is within the terms of the power of
attorney, as written. (NCC, Arts. 1900 & 1902)
Principal has ratified, or has signified his
willingness to ratify the agent’s act. (NCC, Art.
1901)
Effects of the acts of an agent
Trustee
does
not necessarily
or even possess
such authority
to bind the
trustor.
1.
With authority
a.
b.
Trust may be
the result of a
contract; it may
also be created
by law.
2.
POWERS
Without authority
a.
Kinds of agency as to the extent of powers
conferred
b.
An agency may be couched in:
1.
General terms – It is one which is created in
general terms and is deemed to comprise
only acts of administration. (NCC, Art. 1877)
In principal’s name – Valid
In his own name – Not binding on the
principal; agent and stranger are the
only parties, except regarding things
belonging to the principal or when
the principal ratifies the contract or
derives benefit therefrom.
In principal’s name – Unenforceable
but may be ratified, in which case,
may be validated retroactively from
the beginning.
In his own name – Valid on the agent,
but not on the principal.
Rule as to when the principal is not bound by
the act of the agent
593
Special Contracts - Agency
1.
GR: When the act is without or beyond the
scope of his authority in the principal’s name.
NOTE: Rules of preference in double sale
1.
Personal property – possessor in good faith
2.
Real property
XPNs:
a.
b.
c.
d.
2.
Where the acts of the principal have
contributed to deceive a 3rd person
in good faith;
Where the limitations upon the
power created by the principal could
not have been known by the 3rd
person;
Where the principal has placed in
the hands of the agent instruments
signed by him in blank; and
Where the principal has ratified the
acts of the agent.
a. Registrant in good faith;
b. In the absence of inscription, possessor in
good faith;
c. In the absence of possession, person with
the oldest title in good faith. (NCC, Art.
1544)
If agent acted in good faith, the principal shall be
liable for damages to the third person whose
contract must be rejected. If agent is in bad faith,
he alone shall be liable. (NCC, Art. 1917)
A person acting as an agent cannot escape
criminal liability by virtue of the contract of
agency
GR: When the act is within the scope of the
agent’s authority but in his own name.
XPN: When the transaction involves things
belonging to the principal. (NCC, Art. 1883)
The law on agency has no application in criminal
cases. When a person participates in the
commission of a crime, he cannot escape
punishment on the ground that he simply acted
as an agent of another party. (Ong v. CA, G.R. No.
119858, April 29, 2003)
NOTE: The limits of the agent’s authority shall not
be considered exceeded should it have been
performed in a manner more advantageous to the
principal than that specified by him. (NCC, Art.
1882)
An agent cannot maintain an action against
persons with whom they contracted on behalf
of his principal.
RIGHTS OF AGENTS
Right of agent to retain in pledge object of
agency (Legal Pledge) (2015 BAR)
Agents are not a party with respect to that
contract between his principal and third persons.
As agents, they only render some service or do
something in representation or on behalf of their
principals. The rendering of such service did not
make them parties to the contracts of sale
executed in behalf of the latter.
The agent may retain in pledge the things which
are the object of the agency until the principal
effects the reimbursement and pays the
indemnity:
1.
2.
If principal fails to reimburse the agent the
necessary sums, including interest, which the
latter advanced for the execution of the
agency. (NCC, Art. 1912)
If principal fails to indemnify the agent for all
damages which the execution of the agency
may have caused the latter, without fault or
negligence on his part. (NCC, Art. 1913)
The fact that an agent who makes a contract for
his principal will gain or suffer loss by the
performance or non-performance of the contract
by the principal or by the other party thereto does
not entitle him to maintain an action on his own
behalf against the other party for its breach.
An agent entitled to receive a commission from
his principal upon the performance of a contract
which he has made on his principal's account
does not, from this fact alone, have any claim
against the other party for breach of the contract,
either in an action on the contract or otherwise.
Rule where two persons deal separately with
the agent and the principal
If the two contracts are incompatible with each
other, the one of prior date shall be preferred.
This is subject however to the rule on double sale
under Art. 1544 of the NCC. (NCC, Art. 1916)
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
An agent who is not a promisee cannot maintain
594
Civil Law
an action at law against a purchaser merely
because he is entitled to have his compensation
or advances paid out of the purchase price before
payment to the principal. (Uy v. CA, G.R. No.
120465, September 9, 1999)
9.
10. Render an account of his transactions and to
deliver to the principal whatever he may
have received by virtue of the agency, even
though it may not be owing to the principal
(NCC, Art. 1891);
OBLIGATIONS OF THE AGENT
RESPONSIBILITIES AND OBLIGATIONS OF AN
AGENT
NOTE: Every stipulation exempting the agent
from the obligation to render an account
shall be void. [NCC, Art. 1891(2])
Specific obligations of an agent to the
principal
1.
2.
3.
4.
Not to loan to himself without the consent of
the principal if he has been authorized to
lend money at interest (NCC, Art. 1890);
Carry out the agency (NCC, Art. 1884);
Answer for damages which, through his nonperformance, the principal may suffer (Ibid.);
Finish the business already begun on the
death of the principal, should delay entail any
danger (Ibid.);
11. Distinguish goods by countermarks and
designate the merchandise respectively
belonging to each principal, in the case of a
commission agent who handles goods of the
same kind and mark, which belong to
different owners (NCC, Art. 1904);
NOTE: The agency shall also remain in full
force even after the death of the principal if it
has been constituted in the common interest
of the latter and of the agent, or in the
interest of a third person who has accepted
the stipulation in his favor. (NCC, Art. 1930)
12. Be responsible in certain cases for the acts of
the substitute appointed by him (NCC, Art.
1892); (1999 BAR)
Observe the diligence of a good father of a
family in the custody and preservation of the
goods forwarded to him by the owner in case
he declines an agency, until an agent is
appointed. (NCC, Art. 1885);
14. Inform the principal, where an authorized
sale of credit has been made, of such sale
(NCC, Art. 1906);
13. Pay interest on funds he has applied to his
own use (NCC, Art. 1896);
15. Bear the risk of collection and pay the
principal the proceeds of the sale on the
same terms agreed upon with the purchaser,
should he receive also on sale, a guarantee
commission (NCC, Art. 1907); (2004 BAR)
NOTE: The owner shall as soon as
practicable either appoint an agent or take
charge of the goods.
5.
Advance the necessary funds should there be
a stipulation to do so except when the
principal is insolvent (NCC, Art. 1886);
16. Indemnify the principal for damages for his
failure to collect the credits of his principal at
the time that they become due (NCC, Art.
1908);
6.
Act in accordance with the instructions of the
principal and in default thereof, do all that a
good father of a family would do (NCC, Art.
1887);
17. Be responsible for fraud or negligence. (NCC,
Art. 1909; De Leon, 2014)
7.
Not to carry out the agency if its execution
would manifestly result in loss or damage to
the principal (NCC, Art. 1888);
8.
Answer for damages if there being a conflict
between his interests and those of the
principal, he should prefer his own (NCC, Art.
1889);
NOTE: The court shall judge with more or less
rigor, the fault or negligence of the agent,
according to whether the agency was or was not
for compensation. (NCC, Art. 1909)
Instructions
Private directions which the principal may give
the agent in regard to the manner of performing
his duties as such agent but of which a third party
595
Special Contracts - Agency
is ignorant are said to be secret if the principal
intended them not to be made known to such
party. (De Leon, 2014)
apparent scope of the authority with which he
has been clothed, it matters not that it is directly
contrary to the instructions of the principal. The
principal will, nevertheless, be liable unless the
third person with whom the agent dealt knew
that he was exceeding his authority or violating
his instructions.
Obligation of a person who declines an
agency
A person who declines an agency is still bound to
observe the diligence of a good father of the
family in the custody and preservation of goods
forwarded to him by the owner. This is based on
equity. (De Leon, 2014)
Third persons dealing with an agent do so at their
peril and are bound to inquire as to the extent of
his authority but they are not required to
investigate the instructions of the principal.
Authority v. Principal’s instructions
Breach of loyalty of the agent
BASIS
As to the
scope
As to the
relationship
to the agent
As to third
persons
As to
purpose
AUTHORITY
INSTRUCTIONS
Sum total of
the powers
committed to
the agent by
the principal
Contemplates
only a private
rule of guidance
to the agent;
independent
and distinct in
character
Relates to the
subject/
business or
transactions
with
which
the agent is
empowered
to deal or act
Refers to the
manner
or
mode of agent’s
action
with
respect
to
matters within
the scope of
permitted
action
Limitations of
authority are
operative as
against those
who have or
are charged
with
knowledge of
them
Without
significance as
against
those
dealing with the
agent
with
neither
knowledge nor
notice of them
Contemplated
to be made
known
to
third persons
dealing with
the agent
In case of breach of loyalty, the agent is NOT
entitled to commission. The forfeiture of the
commission will take place regardless of whether
the principal suffers any injury by reason of such
breach of loyalty. It does not even matter if the
agency is for a gratuitous one, or that the
principal obtained better results, or that usage
and customs allow a receipt of such a bonus.
NOTE: An agent has an absolute duty to make a
full disclosure or accounting to his principal of all
his transactions and material facts that may have
some relevance with the agency. (Switzerland
General Insurance Company, Ltd. v. Ramirez, G.R.
No. L-48264, February 21, 1980)
When the obligation to account not applicable
1.
2.
3.
Sub-Agent
A sub-agent is a person employed or appointed
by an agent as his agent, to assist him in the
performance of an act for the principal which the
agent has been empowered to perform.
Not expected to
be made known
to those with
whom the agent
deals (De Leon,
2014)
Unless prohibited by the principal, the agent may
appoint a sub-agent or substitute. However, an
agent may not delegate to a sub-agent where the
work entrusted to him by the principal to carry
out requires special knowledge, skill or
competence unless he has been authorized to do
NOTE: If an act done by an agent is within the
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
If the agent acted only as a middleman with
the task of merely bringing together the
vendor and vendees.
If the agent informed the principal of the
gift/bonus/profit he received from the
purchaser and his principal did not object
thereto.
Where a right of lien exists in favor of the
agent. (De Leon, 2014)
596
Civil Law
so by the principal.
comply with the agency.
Effects of Substitution
1.
2.
When substitution is prohibited – All acts of
the substitute shall be void. [NCC, Art.
1892(2)]
When substitution is authorized
a.
b.
3.
Within the scope of the written power of
attorney but agent has actually exceeded his
authority according to an understanding
between him and the principal
The principal did not designate any
particular person – The substitution
has the effect of releasing the agent
from his responsibility unless the
person appointed is notoriously
incompetent or insolvent. [NCC, Art.
1892(2)]
The
principal
designated
the
substitute – Results in the absolute
exemption of the agent.
1.
2.
With improper motives
Motive is immaterial; as long as within the scope
of authority, valid.
When substitution not authorized, but not
prohibited – Valid if the substitution is
beneficial to the principal but if the
substitution has occasioned damage to the
principal, the agent shall be primarily
responsible for the act of the substitute.
With misrepresentations by the agent
1.
2.
SUMMARY OF RULES: ACTS OF AN AGENT
Authorized – principal still liable
Beyond the scope of the agent’s authority
GR: Principal is not liable.
In behalf of the principal, within the scope of
authority
1.
Binds principal;
2.
Agent not personally liable.
Without or beyond scope of authority
XPN: Principal takes advantage of a contract or
receives
benefits
made
under
false
representation of his agent.
Mismanagement of the business by the agent
Contract is unenforceable as against the principal
but binds the agent to the third person.
1.
Binding on the principal when:
2.
1. Ratified; or
2. The principal allowed the agent to act as
Principal still responsible for the acts
contracted by the agent with respect to 3rd
persons;
Principal, however, may seek recourse from
the agent.
Tort committed by the agent
though he had full powers.
1.
2.
Insofar as 3rd persons are concerned (they
are not required to inquire further than the
terms of the written power), agent acted
within scope of his authority;
Principal is estopped.
Within the scope of authority but in the
agent’s name
Principal civilly liable so long as the tort is
committed by the agent while performing his
duties in furtherance of the principal’s business.
Not binding on the principal;
Principal has no cause of action against the
3rd parties and vice versa
Agent in good faith but prejudices 3rd parties
Principal is liable for damages.
NOTE: When the transaction involves things
belonging to the principal, his remedy is to sue
the agent for damages because of failure to
EXPRESS vs. IMPLIED AGENCY
597
Special Contracts - Agency
BASIS
As to
definition
As to
authority
EXPRESS
AGENCY
Agent
has
been actually
authorized
by
the
principal,
either orally
or in writing
Directly
conferred by
words
Q: When is a third person required to inquire
into the authority of the agent?
IMPLIED
AGENCY
Implied from
the acts of
the principal
A:
Incidental to
the
transaction
or reasonably
necessary to
accomplish
the purpose
of the agency,
and
therefore, the
principal is
deemed
to
have actually
intended the
agent
to
possess the
necessary
authority to
act on his
behalf
4.
Doctrine of Apparent Authority
Agent contracts in his own name for an
undisclosed principal;
Agent possesses a beneficial interest in the
subject matter of the agency;
Agent pays money of his principal to a third
party by mistake under a contract which
proves subsequently to be illegal, the agent
being ignorant of the illegality; and
Third party commits a tort against the agent.
The doctrine provides that even if no actual
authority has been conferred on an agent, his or
her acts, as long as they are within his or her
apparent scope of authority, bind the principal.
(Calubad v. Ricarcen Development Corporation,
G.R. No. 202364, August 30, 2017, as penned by J.
Leonen)
The existence of apparent authority may be
ascertained through:
Scope of the agent’s authority as to third
persons
It includes not only the actual authorization
conferred upon the agent by his principal but also
that which is apparent or impliedly delegated to
him. (De Leon, 2014)
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Where authority is in writing – 3rd person is
not required to inquire further than the
terms of the written power of attorney.
A: The principal is bound by the acts of the agent
on his behalf, whether or not the third person
dealing with the agent believes that the agent has
actual authority, so long as the agent has actual
authority, express or implied.
XPNs: A third party subjects himself to liability at
the hands of the agent where the:
3.
2.
Q: When may the actual or apparent authority
of the agent bind the principal?
GR: A third party’s liability on agent’s contracts is
to the principal, not to the agent.
2.
Where authority is not in writing – Every
person dealing with an assumed agent is put
upon an inquiry and must discover upon his
peril, if he would hold the principal liable, not
only the fact of the agency but the nature and
extent of the authority of the agent. (Safic
Alcan & CIE v. Imperial Vegetable Oil Co., Inc.,
G.R. No. 126751, March 28, 2001) If he does
not make an inquiry, he is chargeable with
knowledge of the agent’s authority, and his
ignorance of that authority will not be an
excuse.
NOTE: A third person with whom the agent
wishes to contract on behalf of the principal may
require the presentation of the power of attorney
or the instructions as regards the agency. (NCC,
Art. 1902)
Third party’s liabilities toward agent
1.
1.
598
1.
The general manner in which the principal
holds out an agent as having the power to act,
with which it clothes him; or
2.
The acquiescence of the principal in the
agent’s acts of a particular nature, with actual
Civil Law
or constructive knowledge thereof, within or
beyond the scope of his authorities. (Sargasso
Construction & Development Corp. v.
Philippine Ports Authority, G.R. No. 170530,
July 5, 2010)
Resolution and Secretary’s Certificates, later
alleged to be falsified. Due to Ricarcen’s
failure to pay its loan, the mortgage was
foreclosed, eventually resulting to the
issuance of a Certificate of Sale in favour of
Calubad as the highest bidder, and thus, the
issuance of a certificate of title in his name.
The principal is liable only as to third persons
who have been led reasonably to believe by the
conduct of the principal that such actual
authority exists, although none has been given.
(Banate, et al. v. Philippine Countryside Rural
Bank, Inc., G.R. No. 163825, July 13, 2010)
When
Ricarcen
discovered
these
transactions of Marilyn, it filed before the
Regional Trial Court (“RTC”) a complaint for
Annulment of Real Estate Mortgage and
Extrajudicial Foreclosure of Mortgage and
Sale, with Damages against Marilyn and
Calubad. Should Ricarcen be bound by the
allegedly representative acts of Marilyn?
Apparent Authority v. Authority by Estoppel
BASIS
As to the
knowledge of
the principal
of the
authority of
the agent
Apparent
Authority
Though not
actually
granted, the
principal
knowingly
permits the
agent
to
exercise
or
holds him out
as possessing
Authority by
Estoppel
Arises when
the principal,
by
his
culpable
negligence,
permits
his
agent
to
exercise
powers
not
granted
to
him,
even
though
the
principal may
have
no
notice
or
knowledge of
the
agent’s
conduct
Founded on
the principal’s
negligence in
failing
properly
to
supervise the
affairs of the
agent
A: YES. Ricarcen should be bound by the acts of
Marilyn, whom it had clothed with apparent
authority. The doctrine of apparent authority
that is based on the principle of estoppel, in
accordance with Articles 1431 and 1869 of the
New Civil Code, provides that even if no actual
authority has been conferred on an agent, his or
her acts, as long as they are within his or her
apparent scope of authority, bind the principal.
Q: Marilyn R. Soliman (“Marilyn”), allegedly
acting on behalf of Ricarcen Development
Corporation (“Ricarcen”) of which she was
president, took out a total of P 7,000,000.00
loan from Arturo C. Calubad (“Calubad”) at a
compounded monthly interest rate, which
was secured by a real estate mortgage over
Ricarcen’s real property in Quezon City.
In the case at bar, it was within Marilyn’s scope
of authority as president to act for and enter into
contracts in Ricarcen’s behalf. This could be seen
with how the corporate secretary entrusted her
with blank yet signed sheets of paper to be used
at her discretion, which apparently caused the
execution of the allegedly falsified secretary
certificates. It reasonably appeared that
Ricarcen’s officers knew of the mortgage
contracts entered into by Marilyn in Ricarcen’s
behalf as proved by the checks drawn and issued
by Ricarcen as payments to Calubad for the
monthly interest and principal loans. Calubad, as
an innocent third party dealing in good faith
with Marilyn, should not be made to suffer
because of Ricarcen's negligence in conducting
its own business affairs. If a private corporation
intentionally or negligently clothes its officers or
agents with apparent power to perform acts for
it, the corporation will be estopped to deny that
such apparent authority is real, as to innocent
third persons dealing in good faith with such
officers or agents. (Calubad vs. Ricarcen
Development Corporation, G.R. No. 202364,
August 30, 2017, as penned by Justice Leonen)
To prove her authority to execute the three
mortgage contracts on Ricarcen’s behalf,
Marilyn presented Calubad with a Board
Q: Performance Forex Corp. is a corporation
operating as a financial broker/agent
between market participants in foreign
As to the
establishment
of the
authority
Founded
in
conscious
permission of
acts beyond
the
powers
granted
599
Special Contracts - Agency
exchange
transactions.
Cancio
and
Pampolina accepted the invitation of
Performance Forex Corp.’s agent, Hipol, to
open a joint account with Performance Forex
Corp. Hipol was authorized by Performance
Forex Corp. to follow and execute the trade
orders of Cancio and Pampolina.
3.
such representation; and
Relying upon such representation, such third
person has changed his position to his
detriment. (Country Bankers Insurance Corp.
v. Keppel Cebu Shipyard, et al., G.R. No.
166044, June 18, 2012)
Rules regarding estoppel in agency
However, it was later found out that Hipol
did not execute the orders of Cancio and
Pampolina and instead made unauthorized
transactions resulting into the loss of all of
their money. Hence, Cancio and Pampolina
filed a complaint for damages against both
Performance Forex Corp. and its agent, Hipol
for what happened. Is Performance Forex
Corp. solidarily liable to Cancio and
Pampolina for Hipol’s acts?
1.
Estoppel of agent – One professing to act as
agent for another may be estopped to deny
his agency both as against his asserted
principal and the third persons interested in
the transaction in which he engaged.
2.
Estoppel of principal
A: NO. A principal who gives broad and
unbridled authorization to his or her agent
cannot later hold third persons who relied on
that authorization liable for damages that may
arise from the agent's fraudulent acts. Hipol was
not employed with Performance Forex Corp. He
was categorized as an independent broker for
commission. Cancio and Pampolina conferred
trading authority to Hipol and thus made him
their agent. Performance Forex Corp. was not
privy to how Cancio and Pampolina instructed
Hipol to carry out their orders.
Thus, since the acts of Hipol were the direct
cause of the injury, there is no reason to hold
Performance Forex Corp. liable for actual and
moral damages. If there was any fault, the fault
remains with Hipol and him alone. (Belina
Cancio and Jeremy Pampolina v. Performance
Foreign Exchange Corporation, G.R. No. 182307,
June 6, 2018, as penned by J. Leonen)
AGENCY BY ESTOPPEL
It is when one leads another to believe that a
certain person is his agent, when as a matter of
fact such is not true, and the latter acts on such
misrepresentation, the former cannot disclaim
liability, for he has created an agency by estoppel.
(Paras, 1969)
Requisites of Agency by Estoppel
1.
2.
As to agent – One who knows that
another is acting as his agent and
fails to repudiate his acts, or accepts
the benefits, will be estopped to deny
the agency as against the other.
b.
As to sub-agent – To estop the
principal from denying his liability to
a third person, he must have known
or be charged with knowledge of the
fact of the transaction and the terms
of the agreement between the agent
and sub-agent.
c.
As to third persons – One who
knows that another is acting as his
agent or permitted another to
appear as his agent, to the injury of
third persons who have dealt with
the apparent agent as such in good
faith and in the exercise of
reasonable prudence, is estopped to
deny the agency.
3.
Estoppel of third persons – A third person,
having dealt with one as agent may be
estopped to deny the agency as against the
principal, agent, or third persons in interest.
4.
Estoppel of the government – The government
is not estopped by the mistake or error on
the part of its agents. (Republic v. Bacas, et al.,
G.R. No. 182913, November 20, 2013)
Q: In an expropriation case between RP and
several property owners in Mandaluyong for
construction of the EDSA-Shaw Boulevard
Overpass Project, decision was rendered
against the RP. The RP through the OSG
The principal manifested a representation of
the agent’s authority or knowingly allowed
the agent to assume such authority;
The third person, in good faith, relied upon
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
a.
600
Civil Law
received the decision on October 7, 2002 but
it was only October 20, 2003 that RP filed a
petition for certiorari. It resorted to an
independent civil action because it failed to
file within the 15-day reglementary period. Is
the Republic bound and put in estoppel by the
gross negligence/mistake of its agent/former
counsel?
selling for a principal of personal property, which
for this purpose has to be placed in his
possession and at his disposal. (Jurado, 2019)
Broker
He is a middleman or intermediary who, in behalf
of others, and for a commission or fee, negotiates
contracts or transactions relative to real or
personal property.
A: While the Republic or the government is
usually not estopped by the mistake or error on
the part of its officials or agents, the Republic
cannot now take refuge in the rule as it does not
afford a blanket or absolute immunity. The
pronouncement in Republic v. CA is instructive:
the Solicitor-General may not be excused from its
shortcomings by invoking the doctrine as if it
were some magic incantation that could benignly,
if arbitrarily, condone and erase its errors.
NOTE: Distinguished from an agent: An agent is
authorized to enter into judicial acts in behalf of
the principal but a true broker is merely an
intermediary between the parties and he has no
power to enter into a contract in behalf of any of
the parties. (Pacific Commercial Co. v. Yatco, 68
Phil. 398, July 20, 1939)
Rules
The rule on non-estoppel of the government is
not designed to perpetrate an injustice. In
general, the rules on appeal are created and
enforced to ensure the orderly administration of
justice. The judicial machinery would run
aground if late petitions, like the present one, are
allowed on the flimsy excuse that the attending
lawyer was grossly lacking in vigilance. (Leca
Realty Corp. v. Republic, G.R. Nos. 155605 &
160179, September 27, 2006)
1.
Efficient and procuring cause – a principle in
the law on agency whereby the broker, to be
entitled to compensation, must be the
efficient agent or procuring cause of the sale;
2.
Ready-willing-and-able Rule – a principle
which states that for a broker to be entitled
to commission, he must provide a person
who is ready, willing and able both to accept
and live up to the terms offered by his
principal. (Albano, 2013)
3.
Procuring Cause - Procuring cause is meant to
be the proximate cause. The term procuring
cause, in describing a broker’s activity, refers
to a cause originating a series of events
which, without break in their continuity,
result in accomplishment of prime objective
of the employment of the broker producing a
purchaser ready, willing and able to buy real
estate on the owner’s terms. A broker will be
regarded as the procuring cause of a sale, so
as to be entitled to commission, if his efforts
are the foundation on which the negotiations
resulting in a sale are begun. The broker must
be the efficient agent or the procuring cause
of the sale. The means employed by him and
his efforts must result in the sale. He must
find the purchaser, and the sale must proceed
from his efforts acting as broker. (Medrano, et
al. v. CA, et al., G.R. No. 150678, February 18,
2005)
Implied Agency v. Agency by Estoppel
BASIS
IMPLIED
AGENCY
As to
Agent is a
liability
true
agent,
between with
rights
principal and duties of
and agent an agent.
As to
liability
to third
persons
The principal
is
always
liable;
The agent is
never
personally
liable.
AGENCY BY
ESTOPPEL
If caused by the
“agent,” he is not
considered a true
agent, hence, he has
no rights as such.
1. If caused by the
principal, he is
liable, but only
if
the
3rd
person acted on
the
misrepresentat
ion;
2. If caused by the
agent
alone,
only the agent
is liable.
Factor or Commission agent
Factorage
One who is engaged in the business of buying and
601
Special Contracts - Agency
It is the compensation of a factor or commission
agent.
agent is presumed to include all the necessary
and usual means to carry out the agency into
effect.
Ordinary commission
NOTE: Payment is an act of administration when
it is made in the ordinary course of management.
(NCC, Art. 1878; De Leon, 2014)
It is the fee or compensation for the sale of goods
which are placed in the agent’s possession and at
his disposal.
Guarantee commission
commission (2004 BAR)
or
del
The making of customary gifts for charity, or
those made to employees in the business
managed by the agent are considered acts of
administration. (NCC, Art. 1878; De Leon, 2014)
credere
It is the additional fee or compensation which is
given in return for the risk that the agent has to
bear in the collection of credits.
Q: P granted to A a special power to mortgage
the former’s real estate. By virtue of said
power, A secured a loan from C secured by a
mortgage on said real estate. Is P personally
liable for said loan?
Should the commission agent receive on sale, in
addition to the ordinary commission, a guarantee
commission shall (i) bear the risk of collection
and (ii) pay the principal the proceeds of the sale
on the same terms agreed upon with the
purchaser. (NCC, Art. 1907)
A: NO. A special power to mortgage property is
limited to such authority to mortgage and does
not bind the grantor personally to other
obligations contracted by the grantee in the
absence of any ratification or other similar act
that would estoppe the grantor from questioning
or disowning such other obligations contracted
by the grantee.
The purpose of the guarantee commission is to
compensate the agent for the risks he will have to
bear in the collection of the credit due the
principal. (De, Leon, 2014)
Del credere agent
AGENCY REQUIRING SPECIAL POWER OF
ATTORNEY
He is the agent who guarantees payment of the
customer’s account in consideration of the higher
commission. A del credere agent may sue in his
name for the purchase price in the event of nonperformance by the buyer. (De Leon, 2014)
Special power of attorney (SPA)
It is an instrument in writing by which one
person, as principal, appoints another as his
agent and confers upon him the authority to
perform certain specified acts or kinds of acts on
behalf of the principal with a primary purpose to
evidence agent’s authority to third parties with
whom the agent deals. (De Leon, 2014)
AGENCY COUCHED IN GENERAL TERMS (1992
BAR)
It is created in general terms and is deemed to
comprise only acts of administration even if the
principal should state:
1.
2.
3.
NOTE: The requirement of a special power of
attorney refers to the nature of the authorization
and not to is form. If the SPA is not written, then
it must be duly established by evidence. Gozun v.
Mercado, G.R. No. 167812, December 19, 2006)
That he withholds no power;
That the agent may execute such acts as he
may consider appropriate; or
That the agency should authorize a general
and unlimited management. (NCC, Art. 1877)
Intervention of a notary public in the validity
of an SPA
Acts of administration
GR: A power of attorney is valid although no
notary public intervened in its execution.
(Barretto v. Tuason, G.R. Nos. L-36811, 36827,
36840, 36872, March 31, 1934; Angeles v.
Philippine National Railway, G.R. No. 150128,
August 31, 2006)
Refers to those acts which do not imply the
authority to alienate for the exercise of which an
express power is necessary. (De Leon, 2014)
Unless the contrary appears, the authority of an
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
602
Civil Law
XPN: When SPA is executed in a foreign country,
it must be certified and authenticated in
accordance with Sec. 24, Rule 132, Rules of Court.
(Sps. Alcantara, et al. v. Nido, G.R. No. 165133,
April 19, 2010)
1.
2.
3.
NOTE: The failure to have the special power of
attorney (executed in a foreign country)
authenticated is not merely a technicality – it is a
question of jurisdiction. Jurisdiction over the
person of the real party-in-interest was never
acquired by the courts. (Heirs of Medina v.
Natividad, G.R. No. 177505, November 27, 2008)
NOTE: The scope of the agent’s authority is what
appears in the written terms of the power of
attorney. While third persons are bound to
inquire into the extent or scope of the agent’s
authority, they are not required to go beyond the
terms of the written power of attorney. Third
persons cannot be adversely affected by an
understanding between the principal and his
agent as to the limit of the latter’s authority. In
the same way, third persons need not concern
themselves with instruction given by the
principal to his agent outside of the written
power of attorney. (Siredy Enterprises, Inc. v. CA,
G.R. No. 129039, September 27, 2002)
A special power of attorney is required (1992,
2004 BAR)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
A special power to sell excludes the power to
mortgage (NCC, Art. 1879);
A special power to mortgage does not include
the power to sell (Ibid.); and
A special power to compromise does not
authorize submission to arbitration. (NCC,
Art. 1880)
To create or convey real rights over
immovable property;
To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
To loan or borrow money, unless the latter
act be urgent and indispensable for the
preservation of the things which are under
administration;
To lease any real property to another person
for more than one year;
To make such payments as are not usually
considered as acts of administration;
To obligate principal as guarantor or surety;
To bind the principal to render some service
without compensation;
To bind the principal in a contract of
partnership;
To ratify obligations contracted before the
agency;
To accept or repudiate an inheritance;
To effect novation which put an end to
obligations already in existence at the time
the agency was constituted;
To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agent;
To compromise, to submit questions to
arbitration, to renounce the right to appeal
from a judgment, to waive objections to the
venue of an action or to abandon a
prescription already acquired;
Any other act of strict dominion; and
To waive an obligation gratuitously. (NCC,
Art. 1878)
Construction of Powers of Attorney
Powers of attorney are generally construed
strictly, and courts will not infer or presume
broad powers from deeds which do not
sufficiently include property or subject under
which the agent is to deal. However, the rule is
not absolute and should not be applied to the
extent of destroying the very purpose of the
power. (De Leon, 2014)
Q: X was the owner of an unregistered parcel
of land in Cabanatuan City. As she was abroad,
she advised her sister Y via overseas call to
sell the land and sign a contract of sale on her
behalf.
Y thus sold the land to B1 on March 31, 2001
and executed a deed of absolute sale on behalf
of X. B1 fully paid the purchase price. B2,
unaware of the sale of the land to B1, signified
to Y his interest to buy it but asked Y for her
authority from X.
Without informing X that she had sold the
land to B1, Y sought X for a written authority
to sell. X e-mailed Y an authority to sell the
land. Y thereafter sold the land on May 1,
2001 to B2 on monthly installment basis for
two years, the first installment to be paid at
the end of May 2001. Who between B1 and B2
has a better right over the land? Explain.
(2010 BAR)
Limitations to a special power of attorney
603
Special Contracts - Agency
A: B-2 has a better title. This not a case of double
sale since the first sale was void. The law
provides that when a sale of a piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the
sale shall be void. (NCC, Art. 1874)
4.
5.
The property was sold by Y to B1 without any
written authority from the owner X. Hence, the
sale to B1 was void.
from fault. (Ibid.);
Indemnify the agent for all damages which
the execution of the agency may have caused
the latter without fault or negligence on his
part. (NCC, Art. 1913); and
Pay the agent the compensation agreed upon,
or if no compensation was specified, the
reasonable value of the agent’s services.
(NCC, Arts. 1875 and 1306)
AGENCY BY OPERATION OF LAW
Liability for the expenses incurred by the
agent
Instances where an agency is created by
operation of law
GR: Principal is liable for the expenses incurred
by the agents.
When the agent withdraws from the agency for a
valid reason, he must continue to act until the
principal has had a reasonable opportunity to
take the necessary steps like the appointment of a
new agent to remedy the situation caused by the
withdrawal (NCC, Art. 1929); and
XPNs:
1.
2.
In case a person declines an agency, he is bound
to observe the diligence of good father of the
family in the custody and preservation of the
goods forwarded to him by the owner until the
latter should appoint an agent. (NCC, Art. 1885)
3.
4.
NOTE: The law reconciles the interests of the
agent with those of the principal, and if it permits
the withdrawal of the agent, it is on the condition
that no damage results to the principal, and if the
agent desires to be relieved of the obligation of
making reparation when he withdraws for a just
cause, he must continue to act so that no injury
may be caused to the principal. (De Leon, 2014)
Liability for the contracts entered by the
agent
GR: The principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.
OBLIGATIONS OF THE PRINCIPAL
XPN: Where the agent exceeded his authority.
RIGHTS AND OBLIGATIONS OF THE
PRINCIPAL (2004 BAR)
XPN to the XPN: When the principal ratifies it
expressly or tacitly. (NCC, Art. 1910)
Specific obligations of the principal to the
agent
1.
2.
3.
NOTE: Based on the principle of estoppel, the
principal becomes solidarily liable with the agent
if the former allowed the latter to act as though
he had full powers even if the agent has exceeded
his authority. (NCC, Art. 1911)
Comply with all obligations which the agent
may have contracted within the scope of his
authority [NCC, Art. 1910(1)] and in the name
of the principal;
Advance to the agent, should the latter so
request, the sums necessary for the execution
of the agency. (NCC, Art. 1912);
Reimburse the agent for all advances made
by him, even if the business or undertaking
was not successful, provided the agent is free
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
If the agent acted in contravention of the
principal’s instructions, unless principal
should wish to avail himself of the benefits
derived from the contract;
When the expenses were due to the fault of
the agent;
When the agent incurred them with
knowledge that an unfavorable result would
ensue, if the principal was not aware thereof;
or
When it was stipulated that the expenses
would be borne by the agent, or that the
latter would be allowed only a certain sum.
(NCC, Art. 1918)
Liability for tort committed by the agent
GR: Where the fault or crime committed by the
agent is not in the performance of an obligation of
the principal, the latter is not bound by the illicit
604
Civil Law
acts of the agent, even if it is done in connection
with the agency.
principal.
Acts that May be Ratified
XPNs:
1.
Where the tort was committed by the agent
because of defective instructions from the
principal or due to lack of necessary vigilance
or supervision on his part; or
2.
When the tort consists in the performance of
an act which is within the powers of an agent
but becomes criminal only because of the
manner in which the agent has performed it;
the principal is civilly liable to 3rd persons
who acted in good faith.
1.
2.
3.
4.
5.
Effects of ratification by principal
The relation of the principal and agent is created
since ratification by a principal is equivalent to
prior authority.
Q: CX executed a special power of attorney
authorizing DY to secure a loan from any bank
and to mortgage his property covered by the
owner’s certificate of title. In securing a loan
from bank, DY did not specify that he was
acting for CX in the transaction with said
bank. Is CX liable for the bank loan? Why or
why not? Justify your answer. (2004 BAR)
Ratification relieved the agent from liability to
the third party to the unauthorized transaction,
and to his principal for acting without authority.
The principal thereby assumes responsibility for
the unauthorized act.
Retroactive effect of ratification
A: While as a general rule the principal is not
liable for the contract entered into by his agent in
case the agent acted in his own name without
disclosing his principal, such rule does not apply
if the contract involves a thing belonging to the
principal. In such case, the principal is liable
under Article 1883 of the Civil Code. The contract
is deemed made on his behalf. (Sy-Juco v. Sy-Juco,
G.R. No. L-13471, January 12, 1920)
GR: Ratification operates upon an unauthorized
act to have retroactive effect.
XPNs:
1.
2.
Ratification
3.
In agency, ratification is the adoption or
confirmation by one person of an act performed
on his behalf by another without authority. The
substance of ratification is the confirmation after
the act, amounting to a substitute for a prior
authority. (Prieto v. Court of Appeals, G.R. No.
158597, June 18, 2012; see also NCC, Art, 1393)
4.
2.
3.
4.
5.
Where to do so would defeat the rights of
third parties which have accrued between
the time of the making of the unauthorized
contract and the time of the ratification;
Where to do so would render wrongful an
otherwise rightful act or omission;
Where to do so would allow the
circumvention of a rule of law formulated in
the interest of public policy; and
If the third party has withdrawn from the
contract.
MODES OF EXTINGUISHMENT
1.
2.
3.
Conditions for Ratification
1.
Void acts
Voidable acts
Unrevoked acts – a principal must ratify his
agent’s unauthorized contact before it is
revoked by the other contracting party
Criminal acts
Tortious acts
The principal must have the capacity and
power to ratify;
He must have had knowledge or had reason
to know of material or essential facts about
the transaction;
He must ratify the acts in its entirety;
The act must be capable of ratification; and
The act must be done in behalf of the
4.
5.
6.
605
By its revocation;
By the withdrawal of the agent;
By the death, civil interdiction, insanity or
insolvency of the principal or of the agent;
By the dissolution of the firm or corporation
which entrusted or accepted the agency;
By the accomplishment of the object or
purpose of the agency;
By the expiration of the period for which the
agency was constituted. (NCC, Art. 1919)
(1997 BAR)
Special Contracts - Agency
NOTE: The list is not exclusive. Agency may also
be extinguished by the modes of extinguishment
of obligations in general whenever they are
applicable, like loss of the thing and novation.
is sold, the lawyer was entitled to get 5%
agent's fee plus P1 Million as payment for his
unpaid attorney's fees.
The client, however, subsequently found a
buyer of his own who was willing to buy the
property for a higher amount. Can the client
unilaterally rescind the authority he gave in
favor of his lawyer? Why or why not? (2015
BAR)
Agency may be terminated:
1.
by agreement (Nos. 5 and 6);
2.
by the subsequent acts of the parties which
may be either:
a.
b.
3.
A: NO, the agency in the case presented is one
which is coupled with an interest. As a rule,
agency is revocable at will except if it was
established for the common benefit of the agent
and the principal. In this case, the interest of the
lawyer is not merely limited to his commission
for the sale of the property but extends to his
right to collect his unpaid professional fees.
Hence, it is not revocable at will. (NCC, Art.1927)
by the act of both parties or by
mutual consent; or
by unilateral act of one of them (Nos.
1 and 2);
by operation of law (Nos. 3 and 4). (De Leon,
2014)
Kinds of revocation
A contract of agency is impliedly revoked
when the principal:
Revocation may either be express or implied.
(NCC, Art. 1920) (2014 BAR)
1.
REVOCATION OF AGENCY BY THE PRINCIPAL
2.
GR: Agency is revocable at will by the principal.
(NCC, Art. 1920)
3.
XPNs: An agency is irrevocable:
1.
2.
3.
4.
5.
If a bilateral contract depends upon it.
If it is the means of fulfilling an obligation
already contracted.
If partner is appointed manager and his
removal
from
the
management
is
unjustifiable (NCC, Art 1927); (2010, 2015
BAR)
If it has been constituted in the common
interest of the principal and the agent (NCC,
Art. 1930); or
If it has been constituted in the interest of a
third person who has accepted the
stipulation in his favor i.e., stipulation pour
autrui. (NCC, Art. 1930; Art. 1311)
NOTE: A special power of attorney is not revoked
by a subsequent general power of attorney given
to another agent, unless that the latter refers also
to the act authorized under the special power.
(Tolentino, 1992)
Revocation of agency when the agent is
appointed by two or more principals
When two or more principals have granted a
power of attorney for a common transaction, any
one of them may revoke the same without the
consent of the others. (NCC, Art. 1925)
XPN to the XPN: When the agent acts to defraud
the principal.
Necessity of notice of revocation
Q: A lawyer was given an authority by means
of a Special Power of Attorney by his client to
sell a parcel of land for the amount of P3
Million. Since the client owed the lawyer P1
Million in attorney's fees in a prior case he
handled, the client agreed that if the property
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
Appoints a new agent for the same business
or
transaction
provided
there
is
incompatibility (NCC, Art. 1923);
Directly manages the business entrusted to
the agent (NCC, Art. 1924); or
After granting general power of attorney to
an agent, grants a special one to another agent
which results in the revocation of the former
as regards the special matter involved in the
latter. (NCC, Art. 1926)
1.
606
As to the agent – Express notice is not
always necessary; sufficient notice if the
party to be notified actually knows, or has
reason to know, a fact indicating that his
authority has been terminated or
Civil Law
suspended. Revocation without notice to the
agent will not render invalid an act done in
pursuance of the authority. (De Leon, 2014)
2.
sell the land) is dependent on the agency.
Q: Eduardo executed a SPA authorizing
Zenaida to participate in the pre-qualification
and bidding of a NIA project and to represent
him in all transactions related thereto. It was
granted to them. Zenaida leased Manuel’s
heavy equipment to be used for the NIA
project. Manuel interposed no objection to
Zenaida’s actuations. Eduardo later revoked
the SPA alleging that Zenaida acted beyond
her authority in contracting with Manuel
under the SPA. Records show that Eduardo
and Zenaida entered into a partnership in
regard to the NIA project. Decide.
As to 3rd persons – Express notice is
necessary.
a.
b.
As to former customers – Actual
notice must be given to them
because they always assume the
continuance
of
the
agency
relationship. (NCC, Art. 1873)
As to other persons – Notice by
publication is enough. (NCC, Art.
1922)
A: Under Art. 1818 of the NCC, every partner is an
agent of the partnership for the purpose of its
business and each one may separately execute all
acts of administration, unless, under Art. 1801, a
specification of their respective duties has been
agreed upon, or else it is stipulated that any one
of them shall not act without the consent of all the
others. As such, even granting that Zenaida
exceeded the authority granted by the SPA, being
a partner in the constituted partnership between
her and Eduardo, she can still execute acts of
administration absent any agreement that one
cannot act without the consent of all others.
(Mendoza v. Paule, G.R. No. 175885, February 13,
2009)
NOTE: There is implied revocation of the previous
agency when the principal appoints a new agent
for the same business or transaction, provided
there is incompatibility. But the revocation does
not become effective as between the principal
and the agent until it is in some way
communicated to the latter.
Effect of the direct management by the
principal
GR: The agency is revoked for there would no
longer be any basis for the representation
previously conferred. But the principal must act
in good faith and not merely to avoid his
obligation to the agent.
WITHDRAWAL OR RENUNCIATION OF THE
AGENCY BY THE AGENT
XPN: The only desire of the principal is for him
and the agent to manage the business together.
When the agent can withdraw from the
agency
Q: Richard sold a large parcel of land in Cebu
to Leo for P100 million payable in annual
installments over a period of ten years, but
title will remain with Richard until the
purchase price is fully paid. To enable Leo to
pay the price, Richard gave him a power-ofattorney authorizing him to subdivide the
land, sell the individual lots, and deliver the
proceeds to Richard, to be applied to the
purchase price. Five years later, Richard
revoked the power of attorney and took over
the sale of the subdivision lots himself. Is the
revocation valid or not? Why? (2001 BAR)
The agent may renounce or withdraw from the
agency at any time, without the consent of the
principal, even in violation of the latter’s
contractual rights; subject to liability for breach
of contract or for tort. (NCC, Art. 1928; De Leon,
2014)
Duties
and
responsibilities
withdrawing agent:
1.
A: The revocation is not valid. The power of
attorney given to the buyer is irrevocable because
it is coupled with an interest – the agency is the
means of fulfilling the obligation of the buyer to
pay the price of the land. (NCC, Art. 1927) In other
words, a bilateral contract (contract to buy and
607
of
the
If the principal should suffer any damage by
reason of the withdrawal by the agent, the
latter must indemnify the principal therefor,
unless the agent should base his withdrawal
upon the impossibility of continuing the
performance of the agency without grave
detriment to himself. (NCC, Art. 1928)
Special Contracts - Agency
2.
The agent must continue to act until the
principal has had reasonable opportunity to
take the necessary steps to meet the
situation, even if he should withdraw from
the agency. (NCC, Art. 1929)
cause which extinguishes the agency.
(Hererra v. Luy Kim Guan, G.R. No. L-17043,
January 31, 1961)
4.
The agent is bound by his acceptance to carry
out the agency and is liable for the damages
which, through his non-performance, the
principal may suffer. He must also finish the
business already began on the death of the
principal, should delay entail any danger.
(NCC, Art. 1884)
Kinds of withdrawal by the agent
1.
2.
Without just cause – The law imposes upon
the agent the duty to give due notice to the
principal and to indemnify the principal
should the latter suffer damage by reason of
such withdrawal. (NCC, Art. 1928)
Duty of Agent’s Heirs Upon the Death of Agent
If the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt
such measures as the circumstances may demand
in the interest of the latter. (NCC, Art. 1932)
With just cause – If the agent withdraws from
the agency for a valid reason (NCC, Art. 1929)
as when the withdrawal is based on the
impossibility of continuing with the agency
without grave detriment to himself (NCC,
Art. 1928) or is due to a fortuitous event
(NCC, Art. 1174), the agent cannot be held
liable. (De Leon, 2014)
Heirs continuing the contract of agency
GR: Heirs cannot continue the contract of agency.
The rights and obligations of the agent arising
from the contract are not transmissible to his
heirs.
Effect of Death of Principal to the contract of
agency
GR: The agency is terminated by the death of the
principal even if the agency is for a definite
period. (Lopez v. Court of Appeals, G.R. No. 163959,
August 1, 2018; NCC, Art. 1919)
Ratio: The agency calls for personal services on
the part of the agent since it is founded on a
fiduciary relationship.
XPNs:
XPN:
Agency by operation of law, or a presumed or
tacit agency; and
Agency is coupled with an interest in the
subject matter of the agency (e.g. power of
sale in a mortgage).
1.
1.
2.
3.
If it has been constituted in common interest
of the principal and the agent.
If it has been constituted in the interest of a
third person who accepted the stipulation in
his favor. (NCC, Arts. 1911 and 1930).
Anything done by the agent, without the
knowledge of the death of the principal or on
any other cause which extinguishes the
agency is valid and shall be fully effective
with respect to third persons who may have
contracted with him in good faith. (NCC, Art.
1931)
2.
Q: Is the sale of the land by the agent after the
death of the principal valid?
A: Article 1931 provides that an act done by the
agent after the death of the principal is valid and
effective if these two requisites concur:
1.
NOTE: The death of the principal
extinguishes the agency; but in the same
way that revocation of the agency does not
prejudice third persons who have dealt
with the agent in good faith without notice
of the revocation (NCC, Arts. 1921 & 1922)
such third persons are protected where it is
not shown that the agent had knowledge of
the termination of the agency because of
the death of the principal or of any other
UNIVERSITY OF SANTO TOMAS
2021 GOLDEN NOTES
2.
That the agent acted without the
knowledge of the death of the principal;
and
That the third person who contracted with
the agent himself acted in good faith.
Good faith here means that the third person was
not aware of the death of the principal at the time
that he contracted with said agent. (Rallos v. Felix
Go Chan, G.R. No. L-24332, January 31, 1978)
608
Civil Law
OTHER MODES OF EXTINGUISHING AN
AGENCY
War
During the existence of a state of war, a contract
of agency is inoperative if the agent or the
principal is an enemy alien.
Loss or destruction of subject matter
GR: The loss or destruction of the subject matter
of agency or the termination of the principal’s
interest therein terminates the agent’s authority.
XPNs:
1.
2.
If substitution is possible without substantial
detriment to either party;
If the destroyed subject matter was not in
fact essential to the contract.
Change of circumstance surrounding the
transaction
GR: The authority of the agent is terminated.
XPNs:
1.
If the original circumstances are restored
within a reasonable period of time, the
agent's authority may be revived;
2. Where the agent has reasonable doubts as to
whether the principal would desire him to
act, his authority will not be terminated if he
acts reasonably; or
3. Where the principal and agent are in close
daily contact, the agent's authority to act will
not terminate upon a change of
circumstances if the agent knows the
principal is aware of the change and does not
give him new instructions. (De Leon, 2014)
609